According to Colin Clark hypothesis, the maximum limit of the tax tolerance level is _______ percentage of GNP.
25
Colin Clark (1945) studied the limits of taxable capacity in Western economies after the war. He argued that there is a critical limit to the share of national income a government can take in taxes.
When taxes exceed about 25% of national income (GNP), people's incentive to work, save and produce weakens, governments and pressure groups become more tolerant of inflation, and the resulting price rise reduces the real burden of taxation. Taxation beyond this level is therefore self-defeating and inflationary.
So, according to the Colin Clark hypothesis, the maximum tolerable level of taxation is 25 per cent of GNP.
Hence, the answer is 25.
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