Outline two reasons for the growth of the 'Black Economy' and state two effects for the Exchequer - Leaving Cert Economics - Question 3 - 2012
Question 3
Outline two reasons for the growth of the 'Black Economy' and state two effects for the Exchequer.
Reason 1:
Reason 2:
Effect 1:
Effect 2:
Worked Solution & Example Answer:Outline two reasons for the growth of the 'Black Economy' and state two effects for the Exchequer - Leaving Cert Economics - Question 3 - 2012
Step 1
Reason 1: Reduced disposable incomes
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Answer
Individuals facing lower disposable incomes often cannot afford to pay legitimate prices for goods and services. This leads them to participate in the black economy where they seek cheaper, often unregulated alternatives.
Step 2
Reason 2: Increased VAT rates
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Answer
When VAT rates increase, the prices of goods and services rise significantly. Consumers try to avoid these higher taxes by turning to the black market, where goods can be sold without such taxes included.
Step 3
Effect 1: Loss of tax revenue
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Answer
The growth of the black economy results in reduced VAT and income tax revenues for the government. This decrease in tax income can lead to insufficient funds for public services.
Step 4
Effect 2: Increased government expenditure
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Answer
As more individuals engage in the black economy, the government may need to increase spending on law enforcement to combat tax evasion and illegal business activities, leading to higher overall costs.
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