The corporate income tax ______ business fixed investment,and the personal income tax ______ residential investment.

Question

Quizplus · Accepted Answer

The corporate income tax reduces the after-tax profits of businesses, which reduces their incentive to invest in fixed assets. Therefore, it discourages business fixed investment. On the other hand, the personal income tax reduces disposable income, which reduces the ability of households to save and invest. However, since residential investment is mainly driven by demographic factors and housing market conditions, the personal income tax has a relatively small impact on it. Therefore, it is more likely to encourage residential investment than to discourage it.

The Corporate Income Tax ______ Business Fixed Investment,and the Personal