Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 18, Problem 1QP
To determine
Explain income tax rate cut that causes rise in the tax revenue and a decline in budget deficit.
Expert Solution & Answer
Explanation of Solution
Cutting income tax leads to an increase in tax revenue of government and decrease in the budget deficit. Therefore, if the total amount of taxable income by government increases by more than the tax cut amount, the tax revenue will increase. Increase in tax revenue leads to a fall in the government budget deficit.
Economics Concept Introduction
Tax rate: The percentage of the tax base that must be paid in tax is termed tax rate.
Tax base: The total amount of income that can be taxed by a taxing authority is termed tax base.
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