Between 2000 and 2005, Finland increased its tax on interest income. As a result, the tax wedge ________ and the growth rate of real GDP ________.
A) decreased; slowed
B) increased; slowed
C) decreased; increased
D) increased; increased

Question

Quizplus · Accepted Answer

Increasing the tax on interest income would increase the tax wedge (the difference between what employers pay and what employees receive), potentially discouraging investment and savings. This could slow the growth rate of real GDP as investment is a component of GDP.

Between 2000 and 2005, Finland Increased Its Tax on Interest