The income tax system

Question

Quizplus · Accepted Answer

The income tax system acts as an automatic stabilizer in the economy by adjusting tax rates according to the current economic conditions. During an economic downturn, tax revenues decrease due to lower incomes, which automatically leads to lower government spending, thereby minimizing the effects of the recession. This helps to stabilize the economy without requiring explicit policy intervention, and therefore prevents the economy from moving away from equilibrium.

The Income Tax System