The difference between average and marginal tax rates.

Answer to Problem 6.1LO
The average tax rate is the fraction of total taxable income that an individual or a company pays as tax.
ATR denotes average tax rate, T denotes total tax paid and Y denotes total taxable income.
The average tax rate is calculated as follows:
The marginal tax rate is the tax rate applicable to the additional dollar of taxable income earned by an individual or firm.
MTR denotes marginal tax rate, ?T denotes additional tax paid and ?Y denotes additional taxable income.
The marginal tax rate is calculated as follows:
Explanation of Solution
Taxable incomes are divided into slabs in both progressive and regressive
In a proportional taxation system, there are no income slabs. The marginal tax rate remains the same, irrespective of the level of taxable incomes of individuals and firms. Therefore, the marginal tax rate is a fixed percentage of the total taxable income. Thus, in such a system, the marginal tax rate is always equal to the average tax rate.
Introduction:
Tax rate: It is the percentage of taxable income that an income earner pays to the government as tax.
Progressive taxation system: It is a taxation system in which tax rate rises with increase in taxable income.
Regressive taxation system: It is a taxation system in which tax rate falls with increase in taxable income.
Proportional taxation system: It is a taxation system in which the tax rate is a fixed percentage of taxable income.
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Chapter 6 Solutions
EP ECON.TODAY:MACRO VIEW-MYECONLAB W/TX
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