The incentive to consume tax-deductible goods, instead of nondeductible goods, increases when
A) marginal tax rates are high.
B) marginal tax rates are low.
C) the inflation rate is low and relatively stable.
D) This is a trick question: the consumption of tax-deductible goods is not affected by marginal tax rates.

Question

Quizplus · Accepted Answer

When marginal tax rates are high, taxpayers have a greater incentive to consume tax-deductible goods in order to reduce their taxable income and therefore reduce their overall tax burden.

The Incentive to Consume Tax-Deductible Goods, Instead of Nondeductible Goods