Suppose the user cost of capital in an economy with no corporate income tax is 10 percent.

Question:

Suppose the user in an economy with no corporate income tax is 10 percent.
(a) What is the user cost if the corporate tax rate rises to 20 percent? 30 percent?
(b) Suppose an economy’s steady-state investment rate I / Y is 30 percent when the corporate tax rate is zero. What happens to this investment rate if the corporate tax rate rises to 20 percent? 30 percent?
(c) Are differences in corporate tax rates across countries a plausible explanation for the large variation in investment rates that we see in the data?
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...