Multiple choice

Assertion (A) : Colin Clark hypothesised that the safe upper limit of taxation is 25 percent of national income. Reason (R) The excess burden of taxation will be very high if it goes beyond the 25 percent limit.

  1. (A) is true but (R) is false

  2. Both (A) and (R) are true

  3. Both (A) and (R) are true, and (R) is the correct explanation of (A)

  4. Both (A) and (R) are false
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Colin Clark, a British-Australian economist, did hypothesize that 25% of national income represents a safe upper limit for taxation. The reason provides the correct explanation - beyond this level, the excess burden (deadweight loss) of taxation becomes very high due to disincentive effects on work, investment, and economic activity. Higher tax rates create greater distortions in economic behavior and efficiency losses.

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