Which of the following two effects of a decrease in the tax rate on saving would raise savings?

Question

Quizplus · Accepted Answer

The substitution effect would raise savings because a lower tax rate on savings effectively increases the return on savings, making saving more attractive compared to consumption. The income effect, however, might lead to increased consumption now that individuals have more after-tax income, potentially reducing savings.

Which of the Following Two Effects of a Decrease in the Tax