Between 2000 and 2005, Finland increased its tax on interest income. As a result, the tax wedge____________and the growth rate of real GDP____________ .

Question

Quizplus · Accepted Answer

When Finland increased its tax on interest income, it increased the tax wedge, which represents the difference between the before-tax and after-tax return on an investment. This discourages individuals from saving and investing, leading to a slowdown in the growth rate of real GDP. Therefore, the correct answer is D, increased tax wedge and slowed growth rate of real GDP.

Between 2000 and 2005, Finland Increased Its Tax on Interest