The proportion of any increase in income that must be paid as tax, representing how many cents in every extra dollar earned must be paid to the government
Average Rate of Tax (ART)
The proportion of total income earned that is paid in the form of tax.
Tax payable ÷ Taxable income x 100
Progressive Tax
High income earners pay a higher percentage of their income in tax than lower income earners. ART increases as Y increases.
Regressive Tax
Higher income earners pay a lower percentage of their income in tax than lower income earners. ART decreases as Y increases.
Proportional Tax
All income earners pay the same percentage of their income as tax, ART does not change with Y.
Social Welfare Payments
Government redistributes taxation revenue to lower income earners via social welfare payments. These are often means tested to emphasise they are designed to reduce income inequality
