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Indirect taxes are frequently used as a government policy instrument to change certain consumer behaviour - Leaving Cert Economics - Question b - 2018
Question b
Indirect taxes are frequently used as a government policy instrument to change certain consumer behaviour. (i) Explain the term indirect tax. (ii) Explain how indi... show full transcript
Worked Solution & Example Answer:Indirect taxes are frequently used as a government policy instrument to change certain consumer behaviour - Leaving Cert Economics - Question b - 2018
Step 1
Explain the term indirect tax.
Answer
An indirect tax is a tax imposed on the consumption of goods and services, rather than on income or profits. This tax is typically collected by intermediaries (such as retailers) from the consumers, who then pass it on to the government. Common examples of indirect taxes include Value Added Tax (VAT) and sales tax. The burden of indirect tax often falls on the consumer, as businesses generally incorporate this tax into the pricing of goods and services.
Step 2
Explain how indirect taxes could be used to change certain consumer behaviour, using examples to support your answer.
Answer
Indirect taxes serve as a tool for governments to influence consumer behaviour in several ways:
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Increased VAT on Sunbed Services: In Ireland, the government increased the VAT rate on sunbed services to discourage their use due to links between sunbeds and skin cancer. This tax adjustment aimed to deter consumers from using these services by making them more expensive.
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Sugar Tax on Soft Drinks: Introduced in 2018, this tax aimed to reduce sugar consumption by levying charges on soft drinks with high sugar content. By raising prices, the government encourages consumers to opt for healthier alternatives.
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Tobacco Taxes: Higher taxes on tobacco products are implemented to discourage usage, thus promoting better public health outcomes. This measure significantly reduces smoking rates as the cost becomes a barrier for consumers.
These examples illustrate how indirect taxes can lead consumers to modify their purchasing decisions and promote healthier behaviours.
Step 3
Outline one intervention, other than taxation, that a government could consider to change consumer behaviour.
Answer
One effective intervention is the implementation of National Advertising Campaigns. These campaigns aim to raise awareness regarding the risks associated with harmful products such as tobacco and excessive sugar consumption. By informing the public about health implications, governments can encourage consumers to make healthier choices without necessarily imposing a tax. The objective is to shift consumer behaviour through education and awareness rather than economic penalties.