In order to reduce inequalities, the government should adopt which of the following system of taxation?
Answer & explanation
Correct answer: option 1
The correct answer is option 1: Progressive system of the taxation
Progressive System of Taxation: In this system, the tax rate increases as the income level of the taxpayer increases. Higher income individuals pay a higher percentage of their income in taxes compared to those with lower incomes. This system helps in redistributing wealth and reducing income inequalities by imposing a heavier tax burden on the richer segments of society and easing the tax burden on lower-income individuals.
Proportional taxation: applies the same tax rate to everyone, regardless of income, and does not address inequality.
Regressive taxation has a disproportionately larger impact on lower-income individuals, exacerbating income inequality.