Progressive tax changes target inequality

Steps:

• Compare tax rates: Year 1 had flat or less progressive rates; year 2 introduced higher marginal rates on top incomes.
• Assess impact: Higher earners pay more proportionally, transferring resources via government spending.
• Link to objectives: This redistributes income from rich to poor, addressing Gini coefficient disparities.
• Rule out alternatives: No evidence of trade, price, or labor market focus.

Why B is correct:

• Progressive taxation, per ability-to-pay principle, reduces income inequality by making high earners contribute more to fund social programs.

Why the others are wrong:

• A: Current account deficits stem from trade imbalances; taxes affect savings but not directly exports/imports.
• C: Inflation is primarily managed by monetary policy like interest rates, not tax adjustments.
• D: Structural unemployment requires education/skills training; taxes don't target job mismatches.

Final answer: B