Answer-A tax system where the marginal tax rate (MTR = dT/dY) exceeds the average tax rate (ATR = T/Y) acro...

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Let us see how the average tax rate changes with income. Differentiating ATR  TY with respect to Y dTYdY  Y  dTdY - TY  MTR - ATRY If MTR  ATR, the derivative is positive, which means the average tax rate rises as income rises. A tax system in which the average rate increases with income is called progressive. If MTR  ATR, the average rate is constant and the tax is proportional. If MTR lt ATR, the average rate falls with income and the tax is regressive. Example T  0.20  Y - 5,000 for Y  5,000. The MTR is 20 throughout. At Y  10,000, T  1,000 and ATR  10. At Y  20,000, T  3,000 and ATR  15. MTR exceeds ATR and ATR rises with income, so the tax is progressive. A lump-sum tax has MTR  0, which is below ATR, so it is regressive. VAT is an indirect tax, which is a classification on a different basis. Hence the correct option is C.

A tax system where the marginal tax rate (MTR = dT/d

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