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Consider the following statements Tax buoyancy and Tax Elasticity:
- Tax Elasticity refers to the responsiveness of tax revenue growth to changes in GDP.
- Tax buoyancy refers to changes in tax revenue in response to changes in tax rate.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'D'. Can you explain this answer?
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Consider the following statements Tax buoyancyand Tax Elasticity: Tax ...
Tax Buoyancy and Tax Elasticity:
Tax Buoyancy and Tax Elasticity are two important concepts in the field of economics that measure the responsiveness of tax revenue to changes in various factors. Let's understand each concept separately and then analyze the given statements.
Tax Buoyancy:
Tax buoyancy refers to the changes in tax revenue in response to changes in the tax rate. It measures the elasticity of tax revenue with respect to changes in the tax rate. In simple terms, it tells us how much tax revenue will increase or decrease when the tax rate is increased or decreased.
If tax revenue increases more than proportionally to the increase in the tax rate, it is considered as a buoyant tax system. On the other hand, if tax revenue increases less than proportionally to the increase in the tax rate, it is considered as a non-buoyant or inelastic tax system.
Tax Elasticity:
Tax elasticity, on the other hand, refers to the responsiveness of tax revenue growth to changes in GDP (Gross Domestic Product). It measures the percentage change in tax revenue in response to a percentage change in GDP. Tax elasticity helps in understanding the impact of economic growth on tax revenue.
If tax revenue grows at a higher rate than GDP growth, it is considered as a elastic tax system. Conversely, if tax revenue grows at a lower rate than GDP growth, it is considered as an inelastic tax system.
Analysis of the Statements:
Statement 1: Tax Elasticity refers to the responsiveness of tax revenue growth to changes in GDP.
This statement is correct as tax elasticity does measure the responsiveness of tax revenue growth to changes in GDP.
Statement 2: Tax buoyancy refers to changes in tax revenue in response to changes in tax rate.
This statement is incorrect. Tax buoyancy measures the changes in tax revenue in response to changes in the tax rate, not changes in tax revenue.
Since statement 1 is correct and statement 2 is incorrect, the correct answer is option 'D' - Neither 1 nor 2.
Tax Buoyancy and Tax Elasticity are two important concepts in the field of economics that measure the responsiveness of tax revenue to changes in various factors. Let's understand each concept separately and then analyze the given statements.
Tax Buoyancy:
Tax buoyancy refers to the changes in tax revenue in response to changes in the tax rate. It measures the elasticity of tax revenue with respect to changes in the tax rate. In simple terms, it tells us how much tax revenue will increase or decrease when the tax rate is increased or decreased.
If tax revenue increases more than proportionally to the increase in the tax rate, it is considered as a buoyant tax system. On the other hand, if tax revenue increases less than proportionally to the increase in the tax rate, it is considered as a non-buoyant or inelastic tax system.
Tax Elasticity:
Tax elasticity, on the other hand, refers to the responsiveness of tax revenue growth to changes in GDP (Gross Domestic Product). It measures the percentage change in tax revenue in response to a percentage change in GDP. Tax elasticity helps in understanding the impact of economic growth on tax revenue.
If tax revenue grows at a higher rate than GDP growth, it is considered as a elastic tax system. Conversely, if tax revenue grows at a lower rate than GDP growth, it is considered as an inelastic tax system.
Analysis of the Statements:
Statement 1: Tax Elasticity refers to the responsiveness of tax revenue growth to changes in GDP.
This statement is correct as tax elasticity does measure the responsiveness of tax revenue growth to changes in GDP.
Statement 2: Tax buoyancy refers to changes in tax revenue in response to changes in tax rate.
This statement is incorrect. Tax buoyancy measures the changes in tax revenue in response to changes in the tax rate, not changes in tax revenue.
Since statement 1 is correct and statement 2 is incorrect, the correct answer is option 'D' - Neither 1 nor 2.
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Consider the following statements Tax buoyancyand Tax Elasticity: Tax ...
The Economic Survey 2022-23 submitted recently in Parliament said that Goods and Services Tax (GST) collection is showing a higher buoyancy than the pre-GST system.
What is Tax buoyancy?
- Tax buoyancy explains the relationship between the changes in government’s tax revenue growth and the changes in GDP.
- It refers to the responsiveness of tax revenue growth to changes in GDP.
- When a tax is buoyant, its revenue increases without increasing the tax rate.
- It depends upon:
- the size of the tax base;
- the friendliness of the tax administration;
- the rationality and simplicity of tax rates;
What is Tax Elasticity?
- It refers to changes in tax revenue in response to changes in tax rate.
- For example, how tax revenue changes if the government reduces corporate income tax from 30 per cent to 25 per cent indicate tax elasticity.
Hence both statements are not correct.
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Consider the following statements Tax buoyancyand Tax Elasticity: Tax Elasticity refers to the responsiveness of tax revenue growth to changes in GDP. Tax buoyancyrefers to changes in tax revenue in response to changes in tax rate.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer?
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Consider the following statements Tax buoyancyand Tax Elasticity: Tax Elasticity refers to the responsiveness of tax revenue growth to changes in GDP. Tax buoyancyrefers to changes in tax revenue in response to changes in tax rate.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements Tax buoyancyand Tax Elasticity: Tax Elasticity refers to the responsiveness of tax revenue growth to changes in GDP. Tax buoyancyrefers to changes in tax revenue in response to changes in tax rate.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements Tax buoyancyand Tax Elasticity: Tax Elasticity refers to the responsiveness of tax revenue growth to changes in GDP. Tax buoyancyrefers to changes in tax revenue in response to changes in tax rate.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer?.
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