How to determine regressive tax

Question

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)

Perhaps you could add what you think "Regressive" means in your own words, and then try to come up what that means mathematically? — FooBar, Jun 01 '15 at 18:25
@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" — Robin Haveneers, Jun 01 '15 at 18:46
Don't you mean "the higher the income, the lower the marginal* tax*"? — FooBar, Jun 01 '15 at 19:40
@FooBar yes, that's what I meant. I have the feeling that I'm missing/overlooking something very easy/trivial ;) — Robin Haveneers, Jun 01 '15 at 19:59
As a first step, try drawing what the average and marginal tax rates look like. That might help. — cc7768, Jun 01 '15 at 20:08

score 4 · Accepted Answer · answered Jun 01 '15 at 22:00

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.

How to determine regressive tax

1 Answers1