Question:
A regressive tax system is one in which the
(1) average tax rate increases as income increases.
(2) average tax rate decreases as income increases.
(3) average tax rate remains constant as income increases.
(4) marginal tax rate is always higher than the average tax rate.
(5) total tax revenue falls as national income rises.
Correct Answer:
(2)
Answer Explanation:
A regressive tax takes a larger percentage of income from low-income earners than from high-income earners. Therefore, as an individual’s income increases, the proportion of their income paid in taxes (the average tax rate) decreases. Indirect taxes like VAT are typically regressive.
Topic: Public Finance Year: 2019
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