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Government finance simply means the ways in which the government raises and spends its money.
This can alter market prices in two ways:
- Taxation:
In this case, taxation placed on products. An example would be Value Added Tax (VAT) which is placed on most products you buy. Another example would be petrol duty - the tax on petrol - which is set at so many pence per litre bought.
You will look at this Indirect Taxation later on in the government section of your e-unit.
- Spending (subsidy):
In this case, government giving money to businesses. An example would be a subsidy to a farmer based on the number of animals she keeps on the farm. You will look at subsidies later on in the government section of your e-unit.
Click on the Taxation or Subsidy links to find out how these impact on market prices.
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