Question

Tax buoyancy is defined as .............

• A. growth in tax revenue
• B. growth in tax revenue as a ratio to growth in tax rate
• C. percentage change in tax revenue as a ratio to percentage change in tax base
• D. percentage change in tax revenue as a ratio to percentage change in government expenditure

Hint:

Tax buoyancy measures how effectively the government’s tax system responds to changes in the economy’s tax base.

Answer 1

The Correct Option is C

Step 1: Understand tax buoyancy.
Tax buoyancy refers to the responsiveness of tax revenue to changes in the tax base. It is a measure of how much tax revenue increases or decreases when the tax base (such as income or output) changes.
Step 2: Analyze the options.
- Option (A) is incorrect because tax buoyancy is not just the growth in tax revenue; it measures the relative change to the tax base.
- Option (B) is incorrect because tax buoyancy is not directly related to the change in tax rate.
- Option (C) is correct. Tax buoyancy is defined as the percentage change in tax revenue relative to the percentage change in the tax base.
- Option (D) is incorrect because tax buoyancy is unrelated to changes in government expenditure.
Final Answer: \[ \boxed{\text{percentage change in tax revenue as a ratio to percentage change in tax base}} \]