Question

Why do governments hesitate to raise taxes to fund social welfare programs despite economic globalization?

A. It may reduce the barriers of foreign direct investment.
B. It may encourage wealthy investors to shift assets from one country to another.
C. It may limit the governments' role in setting economic policy.
D. It may lead to privatization of government owned enterprises.
E. It may encourage the disinvestment of unproductive state assets.

Answer 1

Governments hesitate to raise taxes for social welfare programs due to the potential impact on foreign direct investment, wealthy investors shifting assets, and the government's role in setting economic policy.

Step-by-step explanation:

Governments hesitate to raise taxes to fund social welfare programs despite economic globalization for several reasons:

1. It may reduce the barriers to foreign direct investment: When governments raise taxes, it can discourage foreign investors from investing in the country. Higher taxes can make it less attractive for investors to bring their businesses and capital to a particular country.
2. It may encourage wealthy investors to shift assets from one country to another: If taxes are raised significantly, wealthy investors may choose to shift their assets to countries with lower tax rates. This can result in a loss of revenue for the government.
3. It may limit the government's role in setting economic policy: Raising taxes for social welfare programs may limit the government's ability to allocate resources and implement economic policies. It may also impact the government's discretion to determine the overall budget and prioritize spending on other sectors.