Improper tax rates could hinder long-term investments, study finds.
The article discusses how changes in tax rates can affect the economy by influencing banks' lending behavior. A high tax rate can lead to under-investment, while a low tax rate can cause over-investment. To address these issues, a combination of reverse repo operations and reserve requirements can be used. The optimal reverse repo rate depends on the gap between the ideal and actual tax rates. Open market operations may not be effective when tax rates are too high due to interest rate constraints.