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Tax Rates on Higher Income Group Have Been Increased. Which Economic Value Does It Reflect? Explain. - Economics

Tax rates on higher income group have been increased. Which economic value does it reflect? Explain.

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Solution

An increased tax rate on higher income will increase the tax revenue of the government. So, there will be an increase in government expenditure on producing public goods which in turn improves the welfare of the nation. The government can reallocate resources so that social and economic objectives can be met in the following ways:

  1. The government ensures productive expenditure to maximise the welfare of the nation with the minimum level of profit
  2. The government regularises the activities of the private sector to provide social benefit to the poor

Hence, it helps to bridge the gap between the rich and poor sections of society.

Concept: Government Budget - Allocation of Resources
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