GS PrelimsEconomyFiscal Policy1996

A redistribution of income in a country can be best brought about through

A

progressive taxation combined with progressive expenditure

B

progressive taxation combined with regressive expenditure

C

regressive taxation combined with regressive expenditure

D

regressive taxation combined with progressive expenditure

Correct Answer: Option A

Explanation

1. Redistribution of income aims to reduce income inequality within a society. 2. Fiscal policy tools like taxation and public expenditure can be used for this purpose. 3. Progressive taxation means that higher income earners pay a larger percentage of their income in taxes compared to lower income earners. 4. Regressive taxation means lower income earners pay a higher proportion of their income in taxes (e.g., some consumption taxes). 5. Progressive expenditure means government spending that disproportionately benefits lower income groups (e.g., subsidies on essential goods, social welfare programs, public health and education targeted at the poor). 6. Regressive expenditure would imply government spending that benefits higher income groups more. 7. To achieve income redistribution effectively, the government should collect proportionally more taxes from the rich (progressive taxation) and spend proportionally more on benefits and services for the poor (progressive expenditure). 8. Therefore, the combination of progressive taxation and progressive expenditure is the best approach for income redistribution.

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