Under a contractionary taxation policy, the government can reduce the deficit by increasing taxes. reducing taxes. increasing spending. increasing inflation.

A. Increasing taxes

Explanation:

Taxation can be defined as the involuntary or compulsory fees levied on individuals or business entities by the government to generate revenues used for funding public institutions and activities.

There are three (3) types of taxation used by the government, these are;

1. Progressive taxation: it involves charging individuals having higher incomes a higher percentage of their total income.

2. Proportional taxation: it involves charging both lower and higher income earners equally in proportion to their income.

3. Regressive taxation: it involves charging individuals with low incomes a higher percentage of their total income and vice-versa.

A contractionary taxation policy is a policy which typically involves the government reducing (cutting) its spending or increasing taxes in order to reduce deficit. Thus, this policy contracts the economy and as such leading to a reduction in the amount of money available for consumers and businesses to use or spend.

Hence, under a contractionary taxation policy, the government can reduce the deficit by increasing taxes.

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