A tax is said to be regressive when

A low income earners pay a higher proportion of their income in tax than high income earners.
B marginal tax rates exceed average tax rates.
C the cost of collecting the tax exceeds the revenue raised.
D the marginal rate of tax is higher for high income earners than low income earners. [N10/P3/Q13]

➡Answer A

A tax is said to be regressive whe-n burden of tax (proportion of income in tax) is higher on low income earners than high income earners. Options B & D suggest progressive tax while C is irrelevant




Which tax is most likely to be regressive?
A an inheritance tax
B a property tax
C a sales lax
D income tax [J11/P3/Q25]

➡Answer C


Sales tax is considered regressive because people with low incomes are affected more than those with higher incomes from the tax that comes with the purchase.




Which policy would be most effective in achieving a more equal distribution of disposable incomes between households?
A government support for trade unions
B import duties on manufactured goods
C minimum wage policy
D progressive income taxes [J16/P3/Q17]

➡Answer D
It means that the relatively rich people pay a higher proportion of their income as tax as compared to the relatively poor people.









A government wishes to discourage tax avoidance. Which policy to achieve this would be an example of the behavioural approach of nudge theory?
A compelling direct tax deduction by employers
B making random inspections of individual tax records
C providing information on how the tax is spent by the government
D using penalties, such as fines and imprisonment for tax avoidance [J17/P3/Q16]

➡Answer C
Nudge theory proposes positive but indirect suggestions to try and achieve non-forced compliance of groups and individuals. Options A, B & D suggest compliance by force, therefore, they are incorrect










In many countries it has been observed that, when high marginal rates of income tax imposed on richer groups arc reduced, the tax revenue raised increases. What is an implication of this observation?
A Government policy should aim to minimise the income tax.
B Sales taxes are always superior to income taxes as a means of raising revenue for the government.
C Tax policy intended to reduce income tax on the rich may make the poor better off.
D The government should always levy proportional rather than progressive income taxes. [I7/P3/Q17]

➡Answer C
Increasing tax revenues by charging lower tax rate will enable the government to give higher benefits to people.









Which tax would help a government achieve a more equal distribution of income after tax?
A a constant rate sales tax applicable to all goods and services
B a constant rate tax per person
C an income tax with a constant marginal rate over the whole income range
D an income tax with a tax-free allowance and a constant marginal rate thereafter [J18/P3/Q18]

➡Answer D
Tax free allowance would eliminate tax burden on relatively low income groups. All other options suggest Tgresave taxation i.e. a higher tax burden on relatively low income groups; therefore they are likely to lead to a more unequal distribution of income after tax