If taxes became more progressive, we would expect that whenever there was an economic fluctuation
A)there would be no difference in how automatic changes in taxes affected spending.
B)automatic changes in taxes would become less stabilizing.
C)discretionary fiscal policy would become more effective.
D)automatic changes in taxes would become more stabilizing.
E)discretionary fiscal policy would become less effective.

Question

Quizplus · Accepted Answer

When taxes become more progressive, automatic changes in taxes become more stabilizing. This is because progressive taxation means that higher income earners are paying a larger share of their income in taxes, which makes government revenue less sensitive to changes in economic activity. As a result, automatic changes in taxes (such as changes in income tax receipts or capital gains taxes) would be more stabilizing during economic fluctuations, as the revenue base would be less impacted.

If Taxes Became More Progressive, We Would Expect That Whenever