Question

Understand the key factors influencing the relationship between tax rates and the tax revenues governments collect.

Short answer

They can influence the relationship by implementing various schemes such as sales tax, static tax analysis, and dynamic tax analysis.

Step-by-step solution

Step 1. Definition of Tax rates.

The proportion of tax base that has to be paid to the government is known as tax rate.

Step 2. The relationship.

They can influence the relationship by implementing various schemes such as

(a) Sales Tax - Government can impose a tax on the sale of goods and services that consumers are willing to purchase.

(b) Static Tax Analysis - Change in tax rate has no influence on the tax base. The increase in tax rate will not affect the tax base as it will remain the same.

(c) Dynamic Tax Analysis - The change in the tax rate should affect the tax base. The higher the tax rate the lower the tax base and vice versa.