economics medium MCQ

Which of the following best describes a 'Regressive Tax' system?

  1. The tax rate increases as the taxpayer's income increases
  2. The tax rate remains constant regardless of the taxpayer's income
  3. The tax rate decreases as the taxpayer's income increases, placing a heavier relative burden on the poor
  4. The tax is levied exclusively on corporate profits and capital gains

Answer: The tax rate decreases as the taxpayer's income increases, placing a heavier relative burden on the poor

In a regressive tax system, lower-income individuals pay a higher percentage of their total income in taxes compared to the wealthy. Indirect taxes like GST or sales tax are inherently regressive because a poor person and a billionaire pay the exact same absolute tax amount on a loaf of bread, but that tax constitutes a much larger slice of the poor person's total income.

Topic Public Finance - Taxation
Exam Relevance UPSC Prelims, SSC CGL
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