Which of the following policies is likely to generate the smallest increase in national saving?

Question

Quizplus · Accepted Answer

An increase in income taxes typically reduces disposable income, which can lead to a decrease in both consumption and saving. However, if the tax increase leads to a significant reduction in government deficits (by reducing government spending or increasing government savings), it might not lead to an increase in national saving. Among the options given, an increase in consumption taxes and a cut in government transfer payments are more directly aimed at increasing national saving by either discouraging consumption (thereby potentially increasing saving) or directly reducing government spending. Therefore, an increase in income taxes is likely to generate the smallest increase in national saving because it directly reduces individuals' ability to save without a direct mechanism to increase government saving.

Which of the Following Policies Is Likely to Generate the Smallest