Built-in stability is exempliﬁed by the fact that with a progressive tax system, net tax revenues decrease
when GDP decreases.

Question

Quizplus · Accepted Answer

In a progressive tax system, the tax rate increases as the taxable amount increases. Therefore, when GDP decreases, individuals and businesses earn less, leading to lower tax revenues because they fall into lower tax brackets or earn less taxable income. This automatic reduction in tax revenues acts as a stabilizer, cushioning the economic downturn.

Built-In Stability Is Exempliﬁed by the Fact That with a Progressive