Question

With a regressive tax system, as the level of income increases in an economy, the average tax rate will: 
A. Increase
B. Decrease
C. Remain constant
D. Either increase or decrease

Answer 1

Answer:

The correct answer to the following question is option B) decrease.

Explanation:

Regressive tax is that of tax which is imposed in such manner that when the income level in the economy increases , the average tax rate would decrease. This type of tax has heavy burden on the low income people as it takes high proportion of their income. So it can be said here that there is an inverse relationship between tax payer's ability to pay ( which can be measured in income , assets or consumption) and the tax rates imposed.