Cambridge IGCSE Economics: Government budget, spending and taxation (0455) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

This set covers sections 4.3.1 to 4.3.6 of the Cambridge IGCSE Economics 0455 syllabus for examination in 2026. All countries and figures are invented. The marks shown are Marlbridge’s own. Teaching is in the study guide and the revision notes. Other links: the Cambridge IGCSE Economics hub, the printable checklist and the free diagnostics.

Questions

1. Define the government budget. [2]

2. (a) Identify three main areas of government spending. [3] (b) Explain one reason why a government spends on one of these areas. [2]

3. Country B’s budget (invented) expects these revenues: income tax 90, sales tax 70, tax on company profits 35, import duties 5, fees and other income 20 (all in millions of units).

(a) Calculate total tax revenue. [1] (b) Calculate tax revenue as a percentage of total revenue, to one decimal place. [2] (c) Explain two reasons why governments levy taxes. [4]

4. Classify each tax as direct or indirect: income tax, sales tax, tax on company profits, import duty. [4]

5. Country C (invented) charges no income tax on the first 5,000 of income, 20% on income from 5,001 to 25,000, and 40% on income above 25,000.

(a) Calculate the tax paid and the average tax rate for a person earning 15,000 and a person earning 45,000. [4] (b) State whether this tax is progressive, regressive or proportional, and justify your answer. [2]

6. In Country C a sales tax of 15% applies to taxed goods. Household P has an income of 9,000 and spends 6,000 on taxed goods. Household R has an income of 45,000 and spends 20,000 on taxed goods.

(a) Calculate the tax paid by each household as a percentage of its income. [4] (b) Explain why the sales tax is regressive. [2]

7. A tax raises 250 million units and costs 20 million units to collect.

(a) Calculate the cost of collection as a percentage of revenue. [2] (b) State which quality of a good tax this measures. [1] (c) Explain why a tax with complicated and unclear rules fails the test of certainty. [2]

8. A tax of 3 per unit is placed on a good. Before the tax the price was 15 and 2,000 units were sold. The whole tax is passed on to consumers and 1,600 units are now sold.

(a) Calculate government revenue from the tax. [1] (b) Calculate the percentage change in price, the percentage change in quantity and the price elasticity of demand. [3] (c) Calculate the producers’ revenue, excluding the tax, before and after the tax, and the change. [3] (d) Explain one other effect of the tax on producers. [1]

9. Country D (invented) plans to spend 30 of a 150 budget on education and then raises this to 36.

(a) Calculate the share of the 150 budget spent on education. [2] (b) Calculate the percentage increase in education spending. [1] (c) Explain one effect of more education spending on the economy and one opportunity cost. [4]

10. Country A (invented) is considering raising its sales tax from 10% to 14% to pay for health. Household L has an income of 15,000 and spends 12,000 on taxed goods. Household H has an income of 75,000 and spends 30,000 on taxed goods.

(a) Calculate the tax paid as a percentage of income by each household at 10% and at 14%. [4] (b) Evaluate whether raising the sales tax is a fair way to pay for health. [4]

11. Country E (invented) places a tax of 4 per bottle on a sugary drink, a demerit good. Before the tax the price was 12 and 5,000 bottles were sold. After the tax the price is 15 and 3,500 bottles are sold.

(a) Calculate government revenue from the tax. [1] (b) Calculate the share of the tax paid by consumers and by producers. [2] (c) Calculate producers’ revenue, excluding the tax, before and after the tax. [3] (d) Analyse the effects of the tax on consumers, producers, the government and the economy. [4]

Answers

1. A plan of expected government revenue and planned spending [1] for a period, usually one year [1]. [2] Examiner insight: A definition that mentions only taxes, or only spending, describes half of the budget; naming both sides is the safest way to give a precise meaning.

2. (a) Any three areas, such as health [1], education [1] and defence [1]. Social security, infrastructure and debt interest also count. [3] (b) Education, for example: gives workers skills [1] which raise productivity and incomes, benefiting the whole country [1]. [2] Examiner insight: “Explain” asks for a reason and a link. Naming an area alone, or saying it is important, gives you nothing to build on.

3. (a) 90 + 70 + 35 + 5 = 200 million units [1]. [1] (b) Total revenue = 200 + 20 = 220 [1]. 200 / 220 × 100 = 90.9% [1]. [2] (c) Any two reasons, each with a development. For example: to raise revenue [1] so that health and schools can be paid for [1]; to redistribute income [1] by taxing high earners more and giving benefits to low earners [1]. Other valid reasons: to discourage demerit goods, or to protect domestic firms with import duties. [4] Examiner insight: In percentage questions the denominator is the whole revenue, not the tax total; choosing the wrong base is the usual way to lose the answer.

4. Income tax: direct [1]. Sales tax: indirect [1]. Tax on company profits: direct [1]. Import duty: indirect [1]. [4] Examiner insight: Decide by what is taxed, income or spending, not by who hands over the money.

5. (a) 15,000: (15,000 − 5,000) × 20% = 2,000 [1]; average rate 2,000 / 15,000 = 13.3% [1]. 45,000: 20,000 × 20% + 20,000 × 40% = 4,000 + 8,000 = 12,000 [1]; average rate 12,000 / 45,000 = 26.7% [1]. (b) Progressive [1], because the average rate rises from 13.3% to 26.7% as income rises [1]. [6] Examiner insight: Show the band-by-band working so a reader can follow your method, and quote the two average rates in the justification.

6. (a) P: 15% × 6,000 = 900 [1]; 900 / 9,000 = 10% [1]. R: 15% × 20,000 = 3,000 [1]; 3,000 / 45,000 = 6.7% [1]. (b) R pays more money but a smaller share of income [1], because richer households spend a smaller share of income on taxed goods [1]. [6] Examiner insight: Regressive refers to the share of income. An answer that says “rich pay less” without the percentage comparison is not accurate.

7. (a) 20 / 250 × 100 [1] = 8% [1]. (b) Economical (cheap to collect) [1]. (c) If rules are unclear, taxpayers cannot know how much or when to pay [1], which leads to mistakes, disputes and avoidance [1]. [5] Examiner insight: Name the quality and then apply it to the case given. A list of qualities without reference to the tax described is rarely enough.

8. (a) 3 × 1,600 = 4,800 [1]. (b) Price: 3 / 15 × 100 = 20% [1]. Quantity: −400 / 2,000 × 100 = −20% [1]. Elasticity = −20 / 20 = −1 [1]. (c) Before: 15 × 2,000 = 30,000 [1]. After: producers receive 15 per unit, so 15 × 1,600 = 24,000 [1]. Change = −6,000 [1]. (d) Any one of: lower profit; a cut in output or jobs; less money to invest [1]. [8] Examiner insight: Producers’ revenue excludes the tax. Using the consumer price of 18 gives a figure that includes money passed on to the government.

9. (a) 30 / 150 × 100 [1] = 20% [1]. (b) 6 / 30 × 100 = 20% [1]. (c) Effect: more educated, skilled workers [1] raise productivity and output over time [1]. Opportunity cost: the extra 6 units cannot be used for another area such as health [1], or must come from higher taxes or borrowing [1]. [7] Examiner insight: Opportunity cost should be tied to the figures, here the extra 6 units, rather than stated as a general idea.

10. (a) L at 10%: 1,200 / 15,000 = 8.0%; at 14%: 1,680 / 15,000 = 11.2% [2]. H at 10%: 3,000 / 75,000 = 4.0%; at 14%: 4,200 / 75,000 = 5.6% [2]. (b) The tax is regressive: L pays 11.2% of income against 5.6% for H [1], so it is not fair in terms of ability to pay [1]. However, the money could pay for health, which helps low-income households most [1]. A judgement, for example that it is fair only if the health spending outweighs the higher burden on L, with a reason [1]. [8] Examiner insight: A strong evaluation uses the calculated percentages, offers a counter-argument and reaches a judgement, rather than giving two unconnected lists.

11. (a) 4 × 3,500 = 14,000 [1]. (b) Consumers pay 3 of the 4, so 75% [1]; producers 1 of 4, so 25% [1]. (c) Before: 12 × 5,000 = 60,000 [1]. After: producers keep 15 − 4 = 11 per bottle, so 11 × 3,500 = 38,500 [1]. Fall = 21,500 [1]. (d) Consumers: price up 25%, so they buy 30% fewer and may switch to healthier drinks [1]. Producers: lower revenue and profit, may cut output [1]. Government: 14,000 of extra revenue [1]. Economy: lower consumption of a demerit good, so better health, though spending on other goods may rise [1]. [10] Examiner insight: Cover each named group separately and give a reason with each. Four effects on one group will not show the range the question asks for.

Where marks are usually lost

• Using total tax instead of total revenue as the denominator.
• Describing a tax as regressive because the rich pay less money.
• Classifying taxes by who delivers the payment instead of by what is taxed.
• Including the tax in producers’ revenue.
• Giving an effect with no link, such as “price rises” with no result for quantity.
• Stating opportunity cost without saying what is given up.
• Writing a list for an evaluation question with no judgement.
• Leaving out units or the percentage sign.

Next steps

• Review the revision notes and the study guide.
• Visit the Cambridge IGCSE Economics hub and tick off outcomes on the printable checklist.
• Try the free 10-minute diagnostics.
• Book a free trial class at /trial/.

Official syllabus

Source: Cambridge IGCSE Economics 0455 syllabus for examination in 2026, version 2, Cambridge University Press & Assessment, section 4.3 Fiscal policy (4.3.1 to 4.3.6).