Economics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 11

People with low income spend more, as a share of their overall income, on food and clothing than wealthier people. As a result, they tend to spend a higher proportion of their income relative to people with high income. Given this trend, explain how a general sales tax of 8 percent could be regressive. Now, suppose that food and children's clothing are exempted from the sales tax. Is this likely to make the tax more or less regressive?