Compare and Contrast Tax Deductions and Tax Credits in Terms

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The Answer is The trade-off that the government faces is between a system that subsidizes all giving partially (the deduction),versus one that subsidizes some giving fully and some not at all (the credit).Which policy is more efficient is dictated by two considerations.The first is the nature of the demand for the subsidized good.For some goods,individual demand may be very elastic in response to large reductions in the price,but not very elastic in response to small reductions in price; in such cases,credits may cause a larger increase in one behavior than deductions,since credits lead to larger reductions in price.Second,policy makers must decide how important it is to achieve some minimal level of the behavior.With some behaviors,however,the government may want to subsidize some minimal level of provision but not subsidize a particularly generous provision.

Compare and Contrast Tax Deductions and Tax Credits in Terms

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Compare and Contrast Tax Deductions and Tax Credits in Terms

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