Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It decreases deadweight loss by ensuring the tax burden is distributed equally among all income groups.
B
It increases economic welfare by allowing higher-income individuals to pay proportionally more taxes.
C
It has no impact on deadweight loss as vertical equity focuses solely on fairness.
D
It creates a deadweight loss by imposing higher taxes on lower-income individuals, reducing their consumption.
Understanding the Answer
Let's break down why this is correct
Answer
Vertical equity in taxation means that people who earn more money should pay more taxes, while those who earn less should pay less. This idea helps to create a fairer society because it ensures that wealthier individuals contribute a larger share to support public services and social programs. When taxes are structured this way, it can enhance overall economic welfare by providing funding for important services like education and healthcare, which benefit everyone. However, if taxes are too high, they can create a deadweight loss, which means that the economic activity is reduced because people may work less or spend less money due to the high tax burden. For example, if a successful business owner pays a large portion of their income in taxes, they might decide to hire fewer employees, which can slow down job growth and hurt the economy.
Detailed Explanation
When higher-income people pay more taxes, it helps balance the system. Other options are incorrect because Some might think equal tax for everyone is fair; It's a common belief that fairness alone matters.
Key Concepts
Economic welfare
Vertical equity
Topic
Tax Burden and Deadweight Loss
Difficulty
medium level question
Cognitive Level
understand
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