Answer to Question #129918 in Macroeconomics for Rabia Hafeez

Question

Why developed countries use progressive tax system?

Answer 1

Progressive taxation means passing a higher tax burden to the higher income earners or the wealthy in a country. Developed countries prefer progressive taxation formula over other modes of taxation because it reduces the tax burden on low-income earners. Since the low-income earners spend most of their incomes on basic needs such as housing, this system allows them to save more. On the other hand, the wealthier can cater to their necessities and are therefore charged more.

Secondly, the progressive tax system seems to collect more revenues than in flat or regressive taxation modules since the highest proportion of revenues is collected from the affluent members of society.

Finally, a progressive tax system ensures that the high-income earners fund a greater percentage of public services such as roads and healthcare programs that are beneficial to all citizens.

References

https://www.investopedia.com/ask/answers/042815/progressive-tax-more-fair-flat-tax.asp

https://taxprof.typepad.com/taxprof_blog/files/Livingston.pdf