Comments on: What Happens In Classical Economics Theory If Government Raises Taxes?

By: CSI - Economics

CSI - Economics — Thu, 05 Nov 2009 00:54:50 +0000

In classical approach, raises in taxes means a reduction in income available and a reduction in aggregate demand; by this way the inflationary pressures get free, example: if by 2008 were expected an inflation rate of 7%, with an anounces of raising taxes the expectations can put the inflation in 5%.
For talk about the investment, down the present situation, we have to entry to the dark route of economy and leave the classical approach

By: Ronaldo d

Ronaldo d — Wed, 04 Nov 2009 20:59:57 +0000

Any increase in tax rate would mean an increase in prices. About investment, it will be less bec. govt gives tax holidays for investor and they come in different scheme that is very attractive to investors.

By: MK6

MK6 — Wed, 04 Nov 2009 17:00:32 +0000

What it’s doing is shifting the spending power from individuals to the govn’t.
So innovation / business creation may go down, -if folks think they can’t keep what’s theirs.
Other than that, – it appears it’s a closed system. Money is not leaking in nor out of the system, – just who spends it, or who has it, and doesn’t spend it (investment).
If you actually talked about lowering interest rates, – then folks would ‘pull’ money from their own future, – and spend it today (more-so). Hence that would be an increase in the (virtual) money supply (today).