Which type of tax acts as an automatic stabiliser in the economy?

Question

YESPYQ · Accepted Answer

Correct answer: d) Proportional income tax. An automatic stabilizer is a mechanism that helps to stabilize the economy without any deliberate government intervention. Proportional income tax is an automatic stabilizer because it automatically increases tax revenue when the economy expands and decreases tax revenue when the economy contracts. This is because proportional income tax is a tax that takes a fixed percentage of income, regardless of the level of income. When the economy expands, people's incomes increase, and so does the amount of tax revenue collected. When the economy contracts, people's incomes decrease, and so does the amount of tax revenue collected. Hence the correct answer is "D): Proportional income tax."

Which type of tax acts as an automatic stabiliser in the economy?

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