Get to know GDP and its influence on the country’s tax ratio

What is GDP?  

GDP or Gross Domestic Product is the amount of goods and services produced by a country in a certain period. GDP is also a measuring tool that is often used to assess a country’s economic development. 

Historically, GDP was first created as a response to the great depression that hit the United States economy at that time. Economists conducted various studies and finally the United States economic research institute created a new way to measure the level of a country’s economy. 

Since then, it has been known that a country should use a good system to measure its economic development. The aim is for the country to be able to utilize the data that has been generated from the measurements as a basis for making policies. 

Benefits of Gross Domestic Product

The presence of this Gross Domestic Product does have many benefits. Here are 4 benefits of GDP for a country: 

1. Measuring the Speed ​​of the National Economy

With GDP, the country will get real information regarding economic development. Apart from that, through GDP the country can analyze existing data regarding what factors can be maximized and improved.

2. As a comparison of technological progress between countries 

You certainly understand that each country has its own advantages and disadvantages. So a capable measuring instrument is also needed to determine the advantages and disadvantages. With the assessment carried out by GDP, each country will know and determine which country is superior. 

3. Knowing the Economic Structure of a Country

The GDP results will be used as material for analysis regarding which sectors require improvement or need to be improved. 

4. Foundation for Formulating Government Policy

In making decisions or formulating a policy formulation, the government needs reliable data so that its success can be proven. Even though nothing is certain, with data at least it can be easier for the government to make various important policies. 

GDP and its Relationship with Tax Ratios

From the discussion above, of course you can guess that Gross Domestic Product also influences the tax ratio. What is tax ratio? The tax ratio is the ratio of tax recipients to Gross Domestic Product (GDP). This ratio is a measuring tool for assessing a country’s tax revenue performance. 

The size of this tax ratio will later show how successful or capable the government is in financing needs that are the responsibility of the state. So, if the tax ratio is low, it means that the government’s performance has not been optimal. Vice versa, if the tax ratio is high, then the government is considered capable of managing the country’s needs through the APBN (State Revenue and Expenditure Budget). 

How to Calculate GDP

The formula or method for calculating Gross Domestic Product is: 

GDP = C + I + G + NX


  • GDP: Gross Domestic Product
  • C: National household consumption
  • I: Investment 
  • G: State consumption/spending
  • NX: Export – Import

C or consumption in question is the consumption of goods and services within the country. An increase in consumption value can be interpreted as a high desire among people to spend their money. Vice versa. 

I or investment in question is domestic investment or expenditure of capital funds. In the business world in the country concerned, funds will be spent on business development, so that high labor absorption is possible.

G or state spending in question is the procurement of equipment to support government operations, infrastructure development, and even the payment of salaries for state civil servants. The spending carried out by the state will certainly affect the value of GDP itself. 

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