Disadvantages of progressive tax, Managerial Economics


  • The effect on incentives

High  progressive tax makes work and extra effort become less valuable.

  • The effect on the willingness to accept risk

High marginal rates of tax are likely to make entrepreneurs less willing to  undertake risks.

  • Effects on mobility

Some financial inducement is usually required if people are to be asked to change their location, or undergo training, or accept promotion.  Progressive taxation by reducing differentials is likely to have some effect on a person's willingness to any of the above.

  • Encourages tax avoidance and evasion.
  • Outflow of high achievers to other countries with lower Marginal tax rates.
  • It can lead to fiscal-drag where wage and price inflation cause people to pay higher proportion of income as tax.
Posted Date: 11/30/2012 3:16:31 AM | Location : United States

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