Taxes can also influence aggregate demand from "summary" of Principles of Macroeconomics by N. Gregory Mankiw
When the government changes taxes, it affects people's disposable income. Disposable income is the total amount of income that households have available to spend on goods and services after paying taxes. If taxes are decreased, people have more disposable income, and they are likely to spend more on goods and services. This increase in consumption leads to an increase in aggregate demand. Conversely, if taxes are increased, people have less disposable income, and they are likely to spend less on goods and services. This decrease in consumption leads to a decrease in aggregate demand. Therefore, changes in taxes can have a direct impact on aggregate demand in the economy. In addition to affecting consumption, changes in taxes can also impact investment. When taxes are decreased, both individuals and businesses have more money available to save or invest. This increase in savings and investment can lead to an increase in aggregate demand as well. On the other hand, when taxes are increased, individuals and businesses have less money available for saving or investment, which can lead to a decrease in aggregate demand.- Changes in taxes can influence aggregate demand through their impact on consumption and investment. By altering the amount of disposable income individuals and businesses have available, taxes can directly affect the level of spending in the economy. This relationship between taxes and aggregate demand is an important consideration for policymakers when designing fiscal policy to stabilize the economy or promote economic growth.
