Why is it that in Y= C+I+G+X-M, we only deduct import, and not savings and taxation?

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The reason is that this equation describes the level of spending on the output of domestic firms. That is, domestic firms produce all the goods bought by consumers (C), other firms for investment (I), the government (G) and foreigners (X). However, of the first three kinds of spending, some of this includes spending on imports, so to accurately measure spending on domestic firms' output, we need to deduct imports.

Why does this matter? Because it's the income of domestic firms that is paid to households as income (Y). The other equation in this model explains what happens to this household income - Y = C+S+T.

Imports are a leakage from spending, savings and taxation are leakages from household income....Show more

Savings and taxation are already part of the type because:

S=Yd-C, therefore S=Y-T-C

Y=C+I+G ->Y-T-C=I+G-T ->S=I+G-T -> I=S+(T-G)

You can find it in Macroeconomics, by Olivier Blanchard...Show more