A decrease in tax to GDP ratio of a country indi- cates which of the following?1. Slowing economic growth rate2. Less equitable distribution of national incomeSelect the correct answer using the codes given below.
✓ Correct answer: a) 1 only
ExplanationA tax-to-GDP ratio is a gauge of a nation’s tax revenue relative to the size of its economy as measured by gross domestic product (GDP).Statement 1 is correct : A decrease in the tax-to-GDP ratio may indicate that the government is collecting less tax revenue relative to the size of the economy.This can happen due to slow- ing economic growth, which reduces corporate profits, incomes, and consumption, leading to lower tax collections.However, this is not always the case, as tax policy changes (like tax cuts) can also reduce the ratio without reflecting economic slowdown.Statement 2 is incorrect : A decrease in the tax-to-GDP ratio does not necessarily indicate less equitable distribution of na- tional income.While lower tax revenue relative to the size of the economy could result from tax cuts, evasion, or shifts toward in- direct taxes, these factors do not directly determine income in- equality.The impact on equity depends on the structure of the tax system and government policies—if the decline stems from broad-based tax cuts benefiting all income groups, it may not af- fect
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