UPSC Prelims 2015 GS Paper I · Q4 of 100 Economy medium

A decrease in tax to GDP ratio of a country indicates which of the following? 1. Slowing economic growth rate 2. Less equitable distribution of national income Select the correct answer using the code given below.

  1. (a) 1 only ✓ UPSC's answer
  2. (b) 2 only
  3. (c) Both 1 and 2
  4. (d) Neither 1 nor 2

Why the answer is (a)

• The tax-to-GDP ratio falls when tax revenue grows slower than GDP; since tax collections are strongly tied to incomes, profits and consumption, a falling ratio typically signals slowing economic activity or weakening compliance (statement 1).

• Statement 2 is wrong: distribution of income is measured by the Gini coefficient; a lower tax ratio does not by itself indicate less equitable distribution.

• Hence 1 only, option (a).

Why the other options are wrong

(b) 2 only
Statement 2 is wrong: tax ratio does not measure income distribution.
(c) Both 1 and 2
Statement 2 is wrong.
(d) Neither 1 nor 2
Statement 1 is correct: a falling ratio signals slowing growth.

Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2015, held on 23 August 2015. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.

Reading the answer is not the same as getting it right under a clock. Practise this question with UPSC's negative marking, and anything you miss goes into an error notebook until you get it right twice.

Practise this paper free