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LEAKAGE LINE: A line used in the injection-leakage model representing the relation between non-consumption uses of income (that is, leakages) and national income. The three leakages are saving, taxes, and imports. The foundation of the leakages line is the saving line, which is then enhanced by adding taxes and imports. The other part of the injection-leakage model is a line representing injections. The intersection of the injection and leakage lines identifies equilibrium aggregate output, or Keynesian equilibrium.

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REVENUE EFFECT

The generation of revenue used to finance government operations that results from placing taxes on economic activity. The revenue effect is the primary reason that governments impose taxes on members of society. Without the revenue generated from taxes, governments could not provided valuable and essential public goods nor undertake other government operations. This is one of two effects of taxation. The other is the allocation effect, which is the change in resource allocation that results because taxes create disincentives to produce, consume, and exchange.

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