"The government decides to increase tax- (ceteris parabis)".

-> what is the effect of this in an economy?

The effect of a government decision to increase taxes in an economy can vary depending on various factors. However, ceteris paribus, which means "all other things being equal," allows us to consider the impact of this decision in isolation.

1. Decreased disposable income: When taxes increase, individuals and businesses have less money available to spend or invest. This reduction in disposable income can lead to lower consumer spending and business investment, which can affect economic growth.

2. Reduced consumption: Higher taxes can also lead to decreased consumer spending. When individuals have less money to spend on goods and services, demand may decrease, affecting businesses and potentially leading to reduced production and employment.

3. Incentive effects: An increase in taxes can change the incentives for individuals and businesses. Higher taxes on income, for example, reduce the financial reward for working or earning. This could lead to reduced labor supply, disincentives for entrepreneurship, and a potential decrease in economic activity.

4. Redistribution of income: Depending on how taxes are structured, an increase in taxes can lead to a redistribution of income. Taxes can be used to fund social programs or redistribute wealth, aiming to reduce income inequalities within society.

5. Government revenue: An increase in taxes can result in higher government revenue. This additional revenue can be used to fund public goods and services, finance infrastructure projects, reduce budget deficits, or address other government priorities.

It is important to note that the actual impact of tax increases on an economy is not solely determined by ceteris paribus. Economic conditions, the overall tax structure, government spending, and a range of other factors can influence the effects of tax changes in reality.