2015 GS Paper I, all questions

UPSC Prelims 2015 · GS Paper I

Question 4: Economy and Social Development

A decrease in tax to GDP ratio of a country indicates which of the following?

  1. 1.Slowing economic growth rate
  2. 2.Less equitable distribution of national income

Select the correct answer using the code given below.

a1 only
b2 only
cBoth 1 and 2
dNeither 1 nor 2

AnswerUPSC’s answer is (a).

UPSC treats a falling tax-to-GDP ratio as a sign of slowing economic growth: tax collections normally rise with output, so a falling ratio suggests weaker activity or lower tax buoyancy. The ratio says nothing about how national income is distributed; equity depends on who pays which taxes and how the money is spent. So only statement 1 is accepted.

  • 1. Tax revenue tracks economic activity, so a falling ratio points to slowing growth.
  • 2. The ratio measures revenue relative to output, not how income is shared out.

How you could have got this

  1. If you were sure statement 1 is correct, (b) and (d) go: each of them leaves 1 out.

    What you needed to know: Tax revenue tracks economic activity, so a falling ratio points to slowing growth.

  2. Then, if you were sure statement 2 is not correct, (c) goes: it includes 2.

    What you needed to know: The ratio measures revenue relative to output, not how income is shared out.

Only (a) is left. This one needs every statement.

Which options go is worked out from UPSC’s key and the options, not by a model.

Why each option is right or wrong
  • (a) Correct on UPSC's key: a lower ratio signals slowing growth, but says nothing on distribution.
  • (b) Wrong: the ratio does not measure the equity of income distribution.
  • (c) Wrong: statement 2 mixes up tax collection with the distribution of income.
  • (d) Wrong on UPSC's key, which accepts a link between the ratio and the growth rate.

Worth knowing: A falling ratio can also come from tax cuts or weak collection while growth continues, so the key is debatable; this explains UPSC's answer.

Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.

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Source: UPSC, Civil Services (Preliminary) Examination 2015, General Studies Paper I, Series A. The paper on upsc.gov.in.