Tax revenue is tax-elastic when revenue changes proportionately more than the tax base because of changes in the base or tax rates. Which value of tax elasticity reflects this condition?
Correct answer: D. An elasticity above one
- A. An elasticity equal to zero
- B. An elasticity below one
- C. An elasticity equal to one
- D. An elasticity above one
Explanation
Tax elasticity above one means revenue responds more than proportionately to the tax base or other relevant economic changes. An elasticity of one indicates a proportional response, while values below one indicate a less than proportionate response.
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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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