Temporary tax breaks such as the increase in depreciation will tend to
A) increase investment expenditures because the tax breaks will entice firms to leave other countries and invest in Canada.
B) have little impact on current investment expenditures since the tax breaks are temporary.
C) increase investment expenditures in both the short run and the long run, since investment is irreversible.
D) increase investment expenditures in the short run but also increase the uncertainty and volatility of investment since the tax breaks are temporary.

Question

Quizplus · Accepted Answer

Temporary tax breaks such as the increase in depreciation will increase investment expenditures in the short run, but their temporary nature will increase uncertainty and volatility of investment. Firms may be hesitant to invest in long-term projects if they are unsure if the tax breaks will continue in the future. Therefore, the impact of temporary tax breaks on investment is generally short-lived.

Temporary Tax Breaks Such as the Increase in Depreciation Will