how taxes affect the income distribution

Expert Solution

Answer:
Taxes affect income distribution in following mentioned ways:

Reduces Income Inequality of the Society : Tax system in most of the country is progressive, which means generally tax rates increases as your income increases. So it helps in reducing income inequality between rich and poor in society.
Government maintains demand supply balance as well using income tax : When government wants to increase the consumption in the economy apart from decreasing the interest rate of the bank, government have the means to decrease income tax to the people which gives them more capital to spend in the economy. Hence government can control demand supply using income tax as well and hence the income distribution of the person.
Sometime givernment impose extra cess charges on income tax above a given band of income mostly to rich people which help in further decreasing the gap between rich and poor.
Capital that government earns from tax is used to provide subsidised public facility like Buses, trains, health system which is lower strata of society mostlty uses as rich mostly prefer private medium to commute so this also help in decreasing income inequality.

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Rahul Sunny answered 1 year ago

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