Between 2000 and 2005, Finland increased its tax on dividend (interest) income. As a result, the supply curve for loanable funds shifted _ and the tax wedge .

Question

Quizplus · Accepted Answer

Increasing the tax on dividend income would decrease the return on investment for lenders, leading to a decrease in the supply of loanable funds. Therefore, the supply curve for loanable funds shifted leftward. Additionally, the tax wedge increased because the difference between the before-tax and after-tax returns on investment became greater due to the higher tax on dividend income.

Between 2000 and 2005, Finland Increased Its Tax on Dividend