Taiwan's Fiscal Policy

Picture
On May 28, 2010 Taiwan's legislature approved a cut in the corporate income tax rate to 17 % from 20 %. This was the second tax cut within the last twelve months, the government hopes that with these recent tax cuts the island of Taiwan will become more competivie for foreign investors. This policy is an example of expansionary fiscal policy, due to the fact that the government of Taiwan is lowering the tax rate hoping that it will increase the money supply. Lowering the corporate income tax rate will cause the investment rates and expenditures to increase, which causes the aggregate demand curve to increase and shift to the right. An increase in investments leads to an overall increase in productivity, which in result leads to an increase in the aggregate supply curve shifting it to the right. Prices remain stable, the economic growth rate and the quantity of goods and services increases, while the unemployement rate decreases due to more job openings. 

Picture