Two countries with comparable levels of income per capita each propose raising the amount of savings that can be tax-deferred by $2,000. In Wenti, the current maximum amount of savings that can be tax-deferred is $2,000, while in Schale, the current limit is $5,000. In which country are savings likely to rise by more? In which country is the inframarginal response likely to be greatest? Which savings incentive will likely cost its government the most? Explain.
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