THE PAKISTAN DEVELOPMENT REVIEW
The Responsiveness of Tax Yield to Increases in National Income
Taxes are the most important element responsive to government policy and in effect the major instrument for mobilising the increments in national income for investment or expenditure by the state. However, there are severe administrative and political limitations to the extent to which additional taxation measures, such as the expansion of the base, increasing the rates, or imposing new taxes, can be resorted to for increasing the flow of tax receipts. Hence, to meet the ever expanding expenditure requirements of the public sector, the tax structure must rely on its built-in flexibility. The structure of taxation should be such that an increasing portion of the increments in national income gets automatically channeled into the public exchequer without basic budgetary alterations.