The relationship between taxation and income varies for different types of tax. Three relationships can be identified:
Proportional taxes, whereby as income rises, the proportion of income paid in tax remains the same; the tax rate is therefore constant. An example ·would be a flat rate sales tax.
Progressive taxes are those that when income rises, the proportion of the total paid in taxes increases; the average rate of taxation will therefore be lower than the marginal rate. Examples of progressive taxation are income tax, capital gains tax and stamp duty.
Regressive taxes are those that as income rises, the proportion of total income paid in tax falls.. For example, although a high-income earner pays the same amount of television licence fee as a less wealthy person, the amount of tax paid is a smaller proportion of the wealthier person's income.