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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Can tax revenue rise and the budget deficit decline as a result of an income tax rate cut? Explain your answer.

To determine

Explain income tax rate cut that causes rise in the tax revenue and a decline in budget deficit.

Explanation

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.

Concept

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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