Question

What category of taxes (progressive, flat or regressive) may best reduce inequality? Explain.

Answer 1

A progressive tax policy will best reduce the inequality in the market as under the progressive tax regime the tax paid by the person increases as the income of the people increase. i.e. the higher the income of the person the higher the tax paid will be.

It reduces the burden of tax in the poor as they can just go by not paying any taxes if there income is low enough and the person with higher tax pays the higher tax. it increases the consumption at the lower level and decrease the excess income at the top.