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Question

Tax rates on higher income group have been increased. Which economic value does it reflect? Explain.

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Solution

Increasing the tax rates on higher income group implies that the government is following progressive tax policy. This would reduce the inequalities in the distribution of income. The purchasing power of the rich would fall while it would remain the same for the poor. This would reduce the gap between these two groups. Also, the revenue of government is likely to increase by increasing the tax on higher income people which can be used to finance the budgetary deficit.


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Taxation and Fiscal Policy
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