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I have a mock-up exam that my teacher gave me and one of the questions was the following:

Given these four graphs, which one represents regressive tax?

I'm quite sure it's graph A, but I don't seem to be able to find a proper reason why. Any help and/or tips are welcome!

Thanks in advance

EDIT: As per request. How I interpret this: regressive means the higher the income, the lower the tax. Thus: tax drops with higher incomes. But I can't really determine to which graph this applies.

enter image description here

(T is tax, Y is income)

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    $\begingroup$ Perhaps you could add what you think "Regressive" means in your own words, and then try to come up what that means mathematically? $\endgroup$
    – FooBar
    Commented Jun 1, 2015 at 18:25
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    $\begingroup$ Is T a tax rate or taxes in units of Y? $\endgroup$
    – BKay
    Commented Jun 1, 2015 at 18:41
  • $\begingroup$ @FooBar I edited my question ;) $\endgroup$
    – Robin Haveneers
    Commented Jun 1, 2015 at 18:45
  • $\begingroup$ @BKay Good question, I'm quite sure it's taxes in units of Y. I'm from Belgium but if I try and translate it's: "total indebted tax" $\endgroup$
    – Robin Haveneers
    Commented Jun 1, 2015 at 18:46
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    $\begingroup$ As a first step, try drawing what the average and marginal tax rates look like. That might help. $\endgroup$
    – cc7768
    Commented Jun 1, 2015 at 20:08

1 Answer 1

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You're correct it is graph A. Regressive tax means that the lower income you have the higher %tax you have. If you imagine at the lowest level of income, you still have a flat tax(The intercept).

Since the slope is constant the %tax component is the same for all income levels.

Therefore this flat tax component is the part you need to look at. The flat tax represents a larger proportion for lower income earners. As a whole (%tax + Flat tax) the tax is then a higher % for lower income earners, hence regressive taxation.

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