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In the case of each of the following types of taxes: • a tax levied on a good or service; • a tax on company profits; • a tax on an employee's wages - Leaving Cert Economics - Question 7 - 2007
Question 7
In the case of each of the following types of taxes: • a tax levied on a good or service; • a tax on company profits; • a tax on an employee's wages. (i) Name each ... show full transcript
Worked Solution & Example Answer:In the case of each of the following types of taxes: • a tax levied on a good or service; • a tax on company profits; • a tax on an employee's wages - Leaving Cert Economics - Question 7 - 2007
Step 1
Step 2
Step 3
State and explain TWO reasons for taxation in an economy.
Answer
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To provide essential public services. Governments require revenue to fund activities such as defense, policing, and public health. These services benefit society as a whole and ensure the well-being of citizens.
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To redistribute income. Taxation plays a critical role in redistributing income from wealthier individuals and corporations to those in greater need, thus helping to address income inequalities and improving overall social welfare.
Step 4
Outline ONE reason why the Minister for Finance might increase taxes on goods such as alcohol, petrol and tobacco.
Answer
To discourage consumption. Increasing taxes on these goods can lead to higher prices, which may deter consumers from purchasing them, thus aiming to reduce consumption and its associated social costs.
Step 5
Discuss TWO advantages of the plastic bag tax for the Irish economy.
Answer
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Environmental protection. The introduction of a plastic bag tax has encouraged consumers to use reusable bags, thereby reducing plastic waste and its detrimental effects on the environment.
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Increased government revenue. The tax generates additional revenue for the government, which can be allocated towards environmental initiatives or public projects aimed at further sustainability.
Step 6
Calculate the Current Budget balance for the above budget and state whether it is a surplus or a deficit.
Answer
To find the Current Budget balance, subtract the Government Current Spending from the Government Current Income:
Current Budget Balance = Government Current Income - Government Current Spending
Current Budget Balance = €10,000m - €9,500m = €500m
This results in a surplus of €500m.
Step 7
Calculate the Current Account balance, taking these changes into account.
Answer
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Calculate the revised figures:
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Current income lower by 5%:
Current income = €10,000m - (5/100 * €10,000m) = €9,500m
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Current spending higher by 10%:
Current spending = €9,500m + (10/100 * €9,500m) = €10,450m
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Calculate the Current Account balance:
- Current Account Balance = Revised Current Income - Revised Current Spending
- Current Account Balance = €9,500m - €10,450m = -€950m
This results in a deficit of €950m.