In the long run an increase in the marginal tax rate on asset income, _r, in the market clearing model:

Question

Quizplus · Accepted Answer

An increase in the marginal tax rate on asset income decreases the return on investment and thus reduces the incentive to invest, leading to a decrease in the quantity of capital demanded. This ultimately reduces the stock of capital and real GDP in the long run, as shown by the market clearing model.

In the Long Run an Increase in the Marginal Tax