The appropriate tax rate to consider gauging how much the tax system distorts incentives and decision making is the ?
Correct answer: C. marginal tax rate
- A. Proportional tax rate
- B. average tax rate
- C. marginal tax rate
- D. vertical tax rate
- E. horizontal tax rate
Explanation
The marginal tax rate applies to the next dollar earned, so it directly affects decisions about working, saving, and investing. The average tax rate measures the overall tax burden but not the incentive at the margin.
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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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