Because the supply of capital is highly elastic,taxing the income from capital results in
i.firms that demand capital paying the greater share of the tax.
ii.a decrease in the equilibrium quantity of capital.
iii.a deadweight loss.

Question

Quizplus · Accepted Answer

Taxing the income from capital reduces the after-tax return to capital, which leads to a decrease in the demand for capital. This decrease in demand, in turn, leads to a decrease in the equilibrium quantity of capital. The decrease in the equilibrium quantity of capital results in a deadweight loss because it reduces the productive capacity of the economy.

Because the Supply of Capital Is Highly Elastic,taxing the Income