The Government And The Economy

Question 1

Describe the roles the government plays in the economy in Ireland

Answer 1

1. ProvisIon of public wants and merit goods
   Merit goods: goods the gov feels ought to be provided free by the state and not left solely for priv businessness
   Public goods: provision of essential services provided by gov to public without profit intentions
2. Redistribution the gap: close the gap between rich/poor
3. Achieving economic aims: employment, low debt/gdp ratio, low inflation, reducing CBD, exports > imports
4. Legislation
5. State (semi-state) companies eg. An post & State agencies eg. SOLAS

Question 2

What is privatisation?

Arguments for/against privatisation

Answer 2

-The transfer of ownership, property for businesses from the government to the private sector e.g. Aer Lingus, Irish Life

For:

• Improved efficiency: private companies have profit incentive to cut costs and be more efficient/ gov-run industries do not usually share in any profit eg. British airways shown improved efficiency/profitability
• Lack of political interference: governments as economic managers tend to be motivated by political pressures rather than economic and busines senses eg. State enterprise might employ surplus workers as a result of negative publicity involved in unemployment

Against:

• Fragmentation- when multiple private companies are involved in providing a public service, this can create a complicated fragmented system. Private companies usually have little incentive to share information or to work together, because of competition, making it difficult to provide an integrated service eg. Pharmaceutical
• public interest eg. Healthcare should have patient care as their primary objective over profit motive

Question 3

Describe the current budget

Answer 3

Revenue: direct tax (PAYE, corporation tax, capital gains tax, inheritance tax) , indirect tax (VAT, excise duties, stamp duty, custom duties, carbon tax) , PRSI

Expenditure: central fund services (salaries for judges, president, politicians, gov buildings) , interest on national debt, subscriptions eu budget, supply salaries (public sector workers, civil servants) , social welfare payments (unemployment benefit, old age pension, carers allowance)

Question 4

Describe the capital budget

Answer 4

Money in: surplus from current budget, loan repayments from county councils etc, selling gov bonds, money borrowed from IMF (International Monetary Fund), funds from Eu

Expenditure: CBD, loan repayments, physical capital formation eg. Infrastructure + local councils

Question 5

What is a neutral budget and the effects of it

Answer 5

• A situation where current revenue received by the Exchequer/Gov is equal to current expenditure
• Expansionary effect: gov will spend more in economy than takes out by tax = positive effect: increase spending and demand
• Deflationary effect: gov takes more out of economy than it is putting in

Question 6

What is national debt, the two types and disadvantages and advantages to debt

Answer 6

-The total amount of money owed by both central government and local authorities. The national debt is made up of
~Internal debt: gov owes to citizens by selling gov bonds
~External debt: gov owes to non-residents and international financial institutions

Disadv: repaid w/interest, debt on future tax payers, interest rates will increase in future
Adv: productive investments, borrowing for infrastructure/social projects = creates jobs, used to repay loans at lower interest rate

Question 7

Principals of Taxation & Roles of tax

Answer 7

Canon of Equity: providing economic+social justice to people, every person should pay the gov depending if their ability to pay
Canon of Certainty: tax an individual/firm pays should be certain, tax payer should know when/how much/form of tax (ensures gov certainty)
Canon of Convenience: tax payment method/timing should be as convenient as possible to encourage tax payers
Economy: cost of tax collected should be lower than amount of tax collected
Modern: not act as an disincentive to work/invest

Roles: raise money for gov (Current budget expenditure), tax proportionately to high income individuals (reduce gap), discourages activities eg. Sugar tax curbs obesity

Question 8

Advantages and disadvantages of direct tax

Answer 8

Advan: equity eg. PAYE is progressive (tax that takes larger percentage from higher income earners then from lower) , provide certainty , cheap and certain for gov to budget, stabilises economy

Disadv. Discourages workers if too high, black economy (avoid paying)

Question 9

What is imposition of tax, incidence of tax, tax avoidance, tax evasion, tax harmonisation and regressive tax?

Answer 9

• refers to the person or entity that the tax place down by the government (intended target of tax)
• cases whereby the person paying tax was not who the tax was imposed on eg. Publicans increase price and customers pays extra
• legal methods of reducing the amount of tax that person/firm has to pay the gov
• illegal methods by the taxpayer to invade payment of their Jew e.g. not to clear an income to the taxman
• making taxes identical/similar in a particular region e.g. EU wantssame VAT rate
• tax that takes a proportionately greater percentage from low income earner than high

Question 10

What are govs Social Aims/Policies and Regional polices?

Answer 10

Social aims/policies:
Equitable distribution of wealth: achieved by progressive tax, free education
Control pollution: semi state agencies eg. EPA monitor changed by regulate Ireland’s greenhouse emissions, enforcing laws etc
Provide merit wants for citizens: ensure social justice, basic/essential welfare of society

Regional policy: encourage development in areas w/ poor infrastructure + low population density, gov grants, state agencies eg. Enterprise Ireland help firms set up in these regions etc