A decrease in tax to GDP ratio of a country indicates which of the following? 1. Slowing economic growth rate 2. Less equitable distribution of national income Select the correct answer using the codes given below.
- A. 1 only
- B. 2 only
- C. Both 1 and 2
- D. Neither 1 nor 2
Answer: A
Explanation
For the tax/GDP ratio to decrease either the tax collection should decrease or GDP should increase. Now considering the first statement if the GDP collection might or might not necessarily increase with a slow growth rate. Hence this option is ruled out. Increase in indirect tax collection may lead to less equality in income distribution but the same cannot be said for increase in direct tax collection. Hence, even this option can be ruled out.