A tax is considered neutral when it:
Correct answer: B. Causes minimal distortion in economic decisions
- A. Raises the same revenue from every taxpayer
- B. Causes minimal distortion in economic decisions
- C. Applies only to imported goods
- D. Is collected by the central government
Explanation
A neutral tax raises revenue while causing as little change as possible in decisions about work, saving, investment and consumption. Equal payments or central collection do not by themselves make a tax neutral.
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About Public Finance
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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