Tax to GDP Ratio Economic Indicators

A decrease in the tax-to-GDP ratio indicates that tax collections have declined relative to the size of the economy. This typically suggests slower economic growth because either the tax base has contracted or incomes have decreased, both indicators of economic slowdown (Statement 1 is correct). However, tax-to-GDP ratio alone does not directly indicate the distribution of national income (Statement 2 is incorrect)—that would require analysis of progressive vs. regressive taxation and wealth distribution patterns. The tax-to-GDP ratio is primarily a growth indicator. > Tax-to-GDP ratio ↓ = Economic slowdown, not necessarily inequality. Answer: (a).