Government Spending and Taxation- Types and Reasons Flashcards
(18 cards)
What are the 4 main types of government spending?
Current spending
Capital spending
Welfare spending
Debt interest spending
What is current government spending?
Day-to-day spending on public services (e.g. maintenance, wages).
What is capital government spending?
Spending on infrastructure projects like building roads or hospitals.
What is welfare spending?
Government spending on benefits and pensions to support incomes.
What is debt interest spending?
Non-productive spending to service interest on government debt.
Why does the government increase spending to influence the macroeconomy?
To increase AD and boost economic growth.
How can government spending reduce income inequality?
Through welfare benefits that increase disposable income for low earners.
How can the government correct market failure through spending?
By funding subsidies, state provision, and public information campaigns.
What are the two main types of taxation?
Direct Tax
Indirect Tax
What is direct tax?
Tax on income or profits, e.g., income tax and corporation tax.
What is indirect tax?
Tax on spending/expenditure, e.g., VAT, fuel duty, sugar tax.
Name 2 examples of direct taxes.
Income Tax
Corporation Tax
Name 3 examples of indirect taxes.
VAT
Alcohol/Cigarette Duties
Sugar Tax
Why does the government use taxation? (1)
To raise revenue for public services and welfare spending.
Why does the government use taxation? (2)
To influence the macroeconomy (e.g., cut taxes to boost AD during a recession).
Why does the government use taxation? (3)
To reduce income inequality via progressive taxation and redistribution.
How can taxation correct market failure?
Indirect taxes increase COP and prices, reducing over-consumption/production and moving the market closer to the social optimum.
What is the role of taxation in protectionism?
Tariffs (taxes on imports) raise the price of imports to protect domestic producers from foreign competition.
