Series 52: 7.5.3. Effects Of Taxation

7.5.3. Effects of Taxation

When the government increases taxes, money is taken out of the hands of consumers and producers alike. Consumers have less money to spend and to save, and producers see their profits reduced. If consumers are buying fewer products, producers will respond by making fewer products and laying people off. If consumers are saving less, banks will have less money to lend to businesses. Reduced corporate profits mean less money for reinvestment in the business and less incentive to expand. The tax increase serves to slow down an overheated economy.

What does this mean for capital ma