A decrease in tax to GDP ratio of a country indicates which of the following Slowing economic growth...........

Economic Affairs Growth and Indicators

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A decrease in tax to GDP ratio of a country indicates which of the following?

Slowing economic growth rates
Less equitable distribution of national income

Select the correct answer using the code given below.

1 only

2 only

Both 1 and 2

Neither 1 nor 2

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Explanation:

Tax-to-GDP ratio represents the size of a country's tax kitty relative to its GDP. It is a representation of the size of the government's tax revenue expressed as a percentage of the GDP. Higher the tax to GDP ratio the better financial position the country will be in. The ratio represents that the government is able to finance its expenditure. A higher tax to GDP ratio means that the government is able to cast its fiscal net wide. It reduces a government's dependence on borrowings.

Lower tax-to-GDP ratio constrains the government to spend on infrastructure and puts pressure on the government to meet its fiscal deficit targets.
A higher tax to GDP ratio means that an economy's tax buoyancy is strong as the share of tax revenue rises in sync with the rise in the country's GDP.

Tax-to-GDP ratio doesn't measure income distribution.