Suppose a country has a consumption tax that is similar to a provincial sales tax.If its government eliminates the consumption tax and replaces it with an income tax that includes an income tax on interest from savings,which of the following would most likely happen?

Question

Quizplus · Accepted Answer

Replacing a consumption tax with an income tax on interest from savings would likely decrease the amount of savings in the country, as people would have less incentive to save due to the tax on their earnings from interest. When there is less savings, the demand for loans decreases which then leads to less supply of loans which eventually leads to a decrease in interest rates. Therefore, the interest rates would decrease, and saving would also decrease.

Suppose a Country Has a Consumption Tax That Is Similar