A decrease in tax to GDP ratio of a country indicates which of the following? 1. Slowing economic growth rates 2. Less equitable distribution of national income Choose the correct code:

QUESTION

Medium

Economy

Prelims 2015

A decrease in tax to GDP ratio of a country indicates which of the following?

Slowing economic growth rates
Less equitable distribution of national income

Choose the correct code:

Select an option to attempt

Explanation

A decrease in the tax-to-GDP ratio of a country can potentially indicate 1 only (Slowing economic growth rates).

Tax to GDP Ratio This ratio represents the total tax revenue collected by a government as a percentage of the country's GDP. It's a measure of the government's ability to raise funds through taxes.

Impact of Decrease A decrease in this ratio can have several interpretations, but it doesn't necessarily point towards a less equitable income distribution (option 2).

Slowing Growth It might indicate a slowdown in economic growth. During economic downturns, businesses and individuals tend to earn less, leading to lower tax collections.

Change in Tax Policy It could also reflect a deliberate change in tax policy, such as tax cuts or exemptions, aimed at stimulating economic activity.

Inefficiency In some cases, it might suggest inefficiencies in tax collection.

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