A. Automatic increase in tax revenue due to inflation
B. Increase in fiscal deficit
C. Decrease in tax rates
D. Deliberate reduction in government spending
Answer: Option A
Solution (By JKSSB Mock Tests)
Fiscal drag occurs when inflation pushes taxpayers into higher tax brackets, increasing tax revenue without any change in tax rates, acting as an automatic stabiliser.
Explanation:
Since pure public goods are non-excludable, individuals can enjoy the benefits without contributing to the cost, creating an incentive to free-ride.
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