Tax Multiplier Law and Legal Definition

Tax Multiplier is the ratio of change in aggregate output or gross domestic product to an autonomous change in taxes. The tax multiplier is equal to the expenditure multiplier times the marginal propensity to consume. It is the factor applied in retrospective rating in order to increase the basic premium to cover state premium taxes for liability and workers compensation insurance. For example, if a state premium tax is 2%, the tax multiplier used in the formula to determine the retrospective premium would be 1.02.