Question:
Suppose the Gini coefficient of a hypothetical economy has changed from 0.35 to 0.42. An increase in which of the following is most likely to have caused this?
(1) Value Added Tax on essential consumer goods
(2) The tax-free threshold for income taxpayers
(3) Transfer payments to the unemployed
(4) Business spending on training
(5) Government spending on social safety nets
Correct Answer:
(1)
Answer Explanation:
An increase in the Gini coefficient indicates rising income inequality. Imposing a Value Added Tax (VAT) on essential goods is highly regressive and disproportionately hurts the poor, worsening income distribution and raising the Gini score.
Topic: Inequality Year: 2023
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