In Germany, tax revenue collected from direct and indirect taxes climbed to US$860 billion in 2013. This rise was mainly caused by lower unemployment. Germany operates a progressive tax system. During 2014, German politicians debated whether tax rates ought to be raised. Any change in tax rates affects how much tax revenue is collected and also the structure of the tax system.
(a)[2]
Define what is meant by ‘a progressive tax’.
(b)[4]
Explain how direct taxes differ from indirect taxes.
(c)[6]
Analyse the ways in which a fall in unemployment can raise tax revenue.
(d)[8]
Discuss whether a government ought to raise tax rates.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme.