Transcript Government Expenditures and Revenues

Chapter 11:
Government
Expenditures
and
Revenues
Group discussion
How do you think the government is
involved in our economy?
Reasons for Gov’t Involvement in
the Economy
1. Public Goods – good or service that everyone
benefits from regardless if they have paid for it or
not (e.g. national defence)
2. Externalities - good or bad side effects of
production.

Governments thus regulate to prevent negative
externalities, and promote positive ones.
3. Harmful and beneficial goods - cigarettes vs.
education
Reasons for Government
Involvement in the Economy
4. Distribution - help make it a fairer world by taking
from the rich and giving to the poor
5. Economic stability - stable prices and full
employment (you will learn this more in later
chapters)
Growth in Government Spending
 Government spending has increased greatly since
the Great Depression of the 1930s
 Canadians have come to expect gov’ts to take care
of them to prevent another economic depression
from ever occurring again
Government Expenditures
 What goods and services do we receive for the
taxes we pay and what level of gov’t supplies
them?
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Municipal government
Provincial government
Federal government
Government Expenditures
Municipal Gov’t Expenditures:
 Provide us with the local services
 E.g. building and maintenance of local roads,
sewers, sidewalks, streetlights, local police,
garbage collection, and fire departments
Provincial Gov’t Expenditures:
 Fed Gov’t transfers money to pay for goods &
services such as health & education
Federal Government Expenditures
Federal government expenditures have continued to increase
There are 8 major components of federal gov’t expenditures:
1. Transfer to persons – unemployment insurance
2. Transfers to other levels of government – health care &
education
3. Subsidies – natives, farmers, international aid
4. Payments to crown corporations – CBC, Via Rail, etc.
Federal Gov’t Expenditures
5. Defence – military funding
6. Government operations – judicial, government
departments
7. Other – Veterans allowances
8. Public debt charges – money owed by federal gov’t
to Canadians and foreigners in forms of bonds
Group Discussion
 Refer
to page 232, and define the
following:
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
Taxes
Direct Tax (Provide an example)
Indirect Tax (Provide an example)
How does the gov’t make $$$?
Government Revenues
Taxes are the key source of government revenue and
come in many different forms
 Direct – e.g. HST, person is well aware of the amount
of tax
 Indirect – tax is hidden in the price, and is passed on to
the consumer. E.g. fuel
Group Discussion
 Refer
to page 232 again, and define the
following:
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Progressive Tax
Proportional Tax
Regressive Tax
Government Revenues
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
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Progressive – as income increases, the tax rate also increase
Tax payers are broken down into categories. The more they
earn, the more taxes they would pay
Proportional – tax rate remains unchanged as income
increases
Lower, middle, and upper class citizens have the same tax
rates
Regressive – tax rate diminishes as income increases. For
example, if a person has $10 of income and must pay $1 of
tax on a package of cigarettes, this represents 10% of the
person's income. However, if the person has $20 of income,
this $1 tax only represents 5% of that person's income.
Government Revenues
 Municipal – property taxes contribute 90%
 Provincial – direct taxes (33%), indirect taxes
(25%), federal transfers (20%)
 Federal – income tax, corporate income tax,
Unemployment Insurance, excise (luxury) tax and
duties, government investment
Tax Simulation
 Refer to the following sheet on Moodle: Tax
Simulation