In a country with unusually high tax rates,one might expect that ________.
A)GDP might be overstated because the government might avoid running surpluses
B)GDP might be understated because its citizens might avoid reporting some of their income
C)GDP might be overstated because the government might raise its outlays
D)GDP might be understated because its citizens might flee the country
E)after tax income should be much higher than that of countries with lower tax rates

Question

Quizplus · Accepted Answer

High tax rates can incentivize individuals to underreport their income to avoid paying high taxes. This leads to GDP being understated as not all economic activity is being reported.

In a Country with Unusually High Tax Rates,one Might Expect