Answer to Question #242435 in Macroeconomics for mnb

Question

South Africa has great need for investment by the private sector. How would the income tax on companies affect the decision of an entrepreneur to invest?

Answer 1

The higher the tax rate, the more capital is taken out of the hands of the entrepreneur and into the hands of the government. Therefore, theory holds that higher tax rates leave entrepreneurs with less money to reinvest in their businesses.