Question: Why does the second graph with the fact that the effect of higher taxes on the long run capital stock shift the net returns curve


Why does the second graph with the fact that the effect of higher taxes on the long run capital stock shift the net returns curve inwards while the first graph does not shift the curve?


Fig. 5.6 The effect of higher capital taxes on the long-run capital stock after-tax pre-tax return return on capital on capital p+g . ... k KIllustrate the effects of the capital tax on the capital stock. What will happen to output per worker? The pre-tax rate of return on capital must rise (even if the post-tax return does not] and this will cause a fall in the amount of capital per worker. If capital income is taxed at the rate I the incentive to invest is reduced and the long run levels of capital and output will fall
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