ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The tax to GDP ratio measures the size of a country’s tax revenue compared to its GDP. The higher the tax to GDP ratio, the better the country’s financial position. The ratio denotes the government’s ability to fund its expenditures. A greater tax to GDP ratio indicates that the government can cast a wider fiscal net.

Detailed explanation-2: -Changes in the level of taxation in a country or an economy also impact its level of economic activity (and therefore, its GDP).

Detailed explanation-3: -If the tax to GDP ratio is low it shows a slow economic growth rate. The ratio represents that the government can finance its expenditure.

Detailed explanation-4: -Imposition of taxes results in the reduction of disposable income of the taxpayers. This will reduce their expenditure on necessaries which are required to be consumed for the sake of improving efficiency. As efficiency suffers ability to work declines. This ultimately adversely affects savings and investment.