Effects of a regressive tax

Regressive This is the tax where the tax rate decreases as the income level of the tax payer increases. That is the poor pay a higher proportion of their income in form of taxes as compared to the rich.

Effects of a regressive tax

1. It widens the income gap between the low income earners and the rich.
2. It limits consumption of consumer goods especially for the case of the This reduces their economic welfare.
3. It encourages tax evasion hence low tax revenue is realized by the
4. It encourages hard work for the low income This is because they have to work hard in order to pay taxes.
5. It increases the marginal propensity to save for the rich. This encourages investments by the rich.
6. It increases social problems among the low income
7. Low tax revenue is realized by the government.