A tax system is proportional when the average tax rate:
Correct answer: C. Remains constant as income increases
- A. Rises as taxable income increases
- B. Falls as taxable income increases
- C. Remains constant as income increases
- D. Becomes zero above a threshold
Explanation
Under proportional taxation, taxpayers pay the same percentage of income at different income levels. A rising average rate indicates progressive taxation, while a falling rate indicates regressive taxation.
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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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