ECO 204 WEEK 2 DQ1 -TAX CREDITS AND THE LABOR MARKET-PRINCIPLES OF MICROECONOMICS (A+ Guaranteed)

ECO/204 WEEK 2 DQ1 -TAX CREDITS AND THE LABOR MARKET-PRINCIPLES OF MICROECONOMICS

Discussion 1 – Tax Credits and the Labor Market

Many states provide firms with an “investment tax credit” that effectively reduces the price of capital. In theory, these credits are designed to stimulate new investment and thus create jobs. Critics have argued that if there are strong factor substitution effects, these subsidies could reduce employment in the state. Explain their argument. How does this affect the labor market?

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