Taxes, Public Spending and the Government Budget
Governments raise most revenue from taxes on income, spending and profits, and a tax rarely stays where it is placed: the side of the market that can walk away pays less of it. Spending above revenue means borrowing, and the debt that builds up is judged against the size of the economy rather than in pounds.
What a learner can do afterwards
- Classify a tax as progressive, proportional or regressive and justify it with worked figures
- Explain who really bears a tax on a good when demand for it is inelastic
- Distinguish a deficit from debt and say why debt is quoted as a share of GDP
1 · Read
Governments pay for roads, schools, and hospitals with taxes. The main kinds are taxes on earnings, taxes on spending, and taxes on company profits. A fair tax question is always who really pays. If buyers cannot avoid a good, the seller passes the tax on in a higher price, so shoppers carry most of it. The side that can walk away pays less.
Sort taxes with simple incomes of 100, 500, and 1000 coins. A 10 coin bill on each is regressive: 10 percent of 100 but only 1 percent of 1000, so lower incomes carry the bigger share. A flat 10 percent everywhere is proportional: the same share from all. Rates that climb with income are progressive: the bigger share falls on higher incomes. Work the shares before you label.
A deficit is a one-year gap when spending beats tax revenue. Debt is the pile of all past gaps added up, minus any surpluses. Big economies quote debt as a share of GDP so countries of different sizes compare fairly. A deficit of 3 coins means little alone: against a GDP of 10 it is heavy, against 1000 it is light. Deficit is the yearly flow, debt the standing stock.
Elasticity tells you how much buyers react when a price moves. Petrol and bread have inelastic demand, so a tax on them barely cuts sales and buyers carry the cost. Concert tickets react more, so sellers absorb more of the tax instead. Find the inelastic good and you have found the person who really pays.
Work the shares, watch who can walk away, and read debt against the economy.
2 · Watch
Take it off screen
Where it sits
Where this leads
8 questions wait behind this lesson, each with its answer explained. Every answer feeds the sky: stars light as they are learned, and dim when it is time to come back.