Question

Suppose the economy is currently in long-run equilibrium. The government has just decided to lower income taxes. The long-run impact of this policy will be:

Answer 1

Slower economic growth

Step-by-step explanation:

Increasing tax rates can generally and obviously discourage

work because corporations will pay more,

savings, because people earn lesser disposable income,

investment, because firms have lesser profit by paying bigger taxes,

Although specific tax adjustments for certain income categories can assist with the reallocation of economic resources.

But in the long-run economic growth will be slowed down by tax cuts because it will increase deficits by lesser funds being generated for the government over time