Suppose that congress passes an investment tax credit, which subsidizes domestic investment.?

Suppose that congress passes an investment tax credit, which subsidizes domestic investment.

How does this policy affect national saving, doemstic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance?

Suppose that congress passes an investment tax credit, which subsidizes domestic investment.?

It would have to be offset to some degree with higher tax rates, which could further the tax advantages that investors have over wage earners. If it was done properly, it would be at a rate of around 20% where it is offsetting more income of the lower tax brackets and less income of the higher tax brackets.

It would encourage domestic investment and increase the savings rate. It would decrease foreign investments made by Americans. It would probably slightly strengthen the dollar. However foreign countries may react to this by decreasing their investments in the US by an amount that would offset any advantages of increased investment domestically.