Introduction: sources of revenue

The amount of economic activity there is has a direct effect on the amount of public sector revenue. When people are spending, it goes up and up. But when times are tough, it follows suit. This is because public sector revenue depends on tax. Tax on what you earn, tax on what you buy, tax on the home you own … the list goes on. There are direct taxes, which are paid to the government because of the income you earn or the property you have, and indirect taxes, which are typically levied on producers or retailers, but whose burden is largely carried by consumers.

You might not know it, but during the last decades there’s been a remarkable growth of VAT revenues in the world, as more and more countries adopt this tax. The rest of revenues for the public sector largely originate from personal income tax and corporate income tax.