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Title: Will consumption taxes lead to more savings? Why or why not? Post by: avinash0312 on Oct 28, 2019 Will consumption taxes lead to more savings? Why or why not?
Title: Will consumption taxes lead to more savings? Why or why not? Post by: nick1116 on Oct 28, 2019 Consumption taxes have the effect of increasing the return from savings. This has both a substitution and an income effect; the substitution effect is positive, in that the higher returns from savings will cause people to save more. The income effect is negative the higher returns make people feel better off and so they spend more instead of saving. Whether savings increases or decreases when tax rates are cut ultimately must be settled by careful research.
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