A reduction in the marginal tax rate includes a substitution effect that tends to increase savings.

Name: A reduction in the marginal tax rate includes a substitution effect that tends to increase savings.
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When the marginal tax rate is reduced, people have more incentive to save their money rather than spend it because they get to keep more of the money they earn. This is known as the substitution effect, and it tends to increase savings.

A Reduction in the Marginal Tax Rate Includes a Substitution