a) Will a high tax city grow at a faster or slower rate than a low tax city? Briefly explain how the money is spent changes the answer. (4)

Explanation:

A high tax city will grow at a slower rate than a low tax city. This is because high taxes will discourage people from working and taking overtime hours; people will be discouraged from making any investments or innovations. Low taxes will encourage all those mentioned before hence increasing the accrued taxes that have been collected, which provide money to finance the government projects. Lowering taxes also increase savings and investments, which the capacity of the productivity of the economy. There will also be Increased growth when low-income earners get tax cuts.

However, low taxes can also cause a deficit making the country unable to finance government projects.

b) How would regulatory benefits and burdens change the answer above? How would you incorporate the effects of both taxes and regulations together? (4)