Macroeconomics Debates
Paper instructions
Throughout this course, you have learned about economic models and principles and how they apply to the macroeconomic issues a country faces. Take this time to share what you have learned.
In your initial post, choose one of the six debates of macroeconomic policy discussed in the textbook. Explain why this macroeconomic issue is relevant to you. Support your choice with economic concepts you have learned during the course.
ANSWER
Macroeconomics Debates: Should the tax laws be reformed to encourage saving?
One of the six debates over macroeconomic policy advanced in Mankiw (2016)’s Principles of Economics book is whether tax laws should be reformed in order to encourage saving. This macroeconomic issue is of great relevance to me as a citizen and taxpayer. A nation’s economic growth, productive capacity, and living standards depend on the investments or savings made (Mankiw, 2016; Ibrahim, 2017). Therefore, laws that make the practice of saving look attractive can encourage me to make higher savings. On the other hand, laws that lead to heavy taxation of saving returns are likely to discourage me from making savings.
The proponents of the debate argue that there is need for the tax laws to be reformed to enhance the saving culture. Taxation of one’s income and wealth scares away those who want to make investments (Mankiw, 2016). To change the situation, it is necessary to introduce fair tax laws. An example is replacement of income tax with consumption tax.
On their part, the critics of the debate hold that there is no need to reform tax laws for the purpose of boosting saving. This is due to the fact that such tax changes will only benefit a few wealthy people to whom a tax break is not important (Mankiw, 2016). It is also important to note that the effect of such reforms on private savings is insignificant.
As a taxpayer, I agree with the respondents that reformation of tax laws is not necessary in promoting higher savings. One of the best strategies that can be used to enhance national saving is reducing the budget deficit of the government. A budget deficit arises when a government spends more money than the revenue available (Dullien et al., 2017). Taming government expenditure is a direct way through which taxes can be lowered. Under such circumstances, we can be motivated to make more savings.
References:
Dullien, S., Goodwin, N., Harri, J. M., Nelson, J. A., Roach, B. & Torras, M. (2017). Macroeconomics in Context: A European Perspective. London: Taylor & Francis.
Ibrahim, M. J. (2017). Emerging Issues in Economics and Development. BoD – Books on Demand.
Mankiw, N. G. (2016). Principles of Economics. London: Cengage Learning.
