What is the primary purpose of increasing personal income tax rates as a fiscal policy?

The primary purpose of increasing personal income tax rates as a fiscal policy is to reduce aggregate demand. When the government raises income tax rates, individuals have less disposable income available to spend. This reduction in spending can lead to a decrease in overall consumer demand for goods and services in the economy.

In the context of fiscal policy, this approach is often utilized when the economy is operating at or above its full capacity, leading to inflationary pressures. By decreasing disposable income through higher taxes, the government aims to cool off an overheating economy, thereby controlling inflation.

While increased taxes reduce personal income and can potentially lead to lower consumer spending, they do not directly stimulate economic growth or lower interest rates, nor do they encourage consumer spending, which are important factors in macroeconomic management.