Suppose the user cost of capital in an economy with no corporate income tax is 10 percent, and the depreciation rate is 2%.

(a) (5 points) What is the user cost if the corporate tax rate raises to 20 percent?

(b) (5 points) Suppose the economys steady-state investment rate I/Y is 30 percent when the corporate tax rate is 0. What happens to this investment rate if the corporate tax rate rises to 20 percent?

(c) (5 points) Are dierences in corporate tax rates across countries a plausible explanation for the large variation in investment rates that we see across countries?