How can lowering a tax influence the total tax revenue collected?

Multiple choice question for Taxation. Select an option, then review the explanation below.

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It will not affect the amount of tax revenue generated.It invariably decreases tax revenue no matter how high the tax was initially.It might boost tax revenue if the original tax rate was excessively high.It leads to decreased market efficiency.It guarantees an increase in market demand.

Explanation

Reducing a tax can sometimes raise total tax revenue if the initial tax rate was very high, because lower rates may encourage more economic activity and reduce tax avoidance, thereby expanding the taxable base.

Practice related questions from the same subject.

1.What defines a progressive tax system?
2.Which tax rate is most relevant when evaluating the vertical equity of a taxation system?
3.What defines an efficient tax system?
4.Sana values a pair of blue jeans at Rs400. When the price is Rs350, she purchases the jeans and gains a consumer surplus of Rs50. If a tax causes the price to increase to Rs450, Sana decides not to buy the jeans. What concept does this scenario illustrate?
5.What is the result when a tax changes the behavior of buyers and sellers, leading to a reduction in the quantity of goods produced and exchanged compared to a no-tax scenario?

How can lowering a tax influence the total tax revenue collected?

Explanation

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