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Home Q & A Board Other Fields Homework Help Business Economics
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avinash0312 avinash0312
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4 years ago
Will consumption taxes lead to more savings? Why or why not?
Textbook 
Macroeconomics: Principles, Applications and Tools

Macroeconomics: Principles, Applications and Tools


Edition: 7th
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#1
4 years ago
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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