Tax Buoyancy

  • August 31, 2020
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Subject: Economy

Context:

Even as the government is battling much-reduced tax buoyancy and a yawning revenue deficit, finance minister kept alive industry’s hopes for further tax cuts.

Concept:

  • Tax buoyancy explains this relationship between the changes in government’s tax revenue growth and the changes in GDP.
  • It refers to the responsiveness of tax revenue growth to changes in GDP.
  • When a tax is buoyant, its revenue increases without increasing the tax rate.
  • A similar looking concept is tax elasticity. It refers to changes in tax revenue in response to changes in tax rate
economy Tax Buoyancy