Chapter 12: Fiscal Policy and Budget Framework

What you'll learn in this chapter

• debate why governments tax and how taxes affect the economy overall
• explain how tax policy can address inequality (redistribution)
• identify main sources of government revenue and expenditure (current vs capital)
• explain deficits, surpluses and balanced budgets — and how governments manage them
• compare expansionary, neutral and contractionary fiscal policy (business cycle stabilisation)
• evaluate limits of fiscal policy (timing, debt, crowding out, political constraints, etc.)
• explain how EU/Eurozone membership affects Ireland’s fiscal choices

Core ideas

Taxation funds public services, but it also shapes behaviour. You’ll look at common Irish taxes (e.g. VAT, excise, income-related charges) and connect them to goals like fairness, efficiency, stabilising the economy and discouraging harmful consumption.

This chapter connects the Budget to the wider economy. You’ll split the State’s accounts into current (day-to-day) and capital (long-term investment), then link fiscal choices to growth, unemployment and inflation across the business cycle.

Exam focus

• definitions: direct vs indirect, progressive/regressive/flat, avoidance vs evasion
• application: explain how VAT/excise can change consumption and externalities
• evaluation: pros/cons of changing income tax rates (employment, incentives, competitiveness)
• classify items correctly: current vs capital revenue/expenditure
• policy scenarios: choose an appropriate fiscal stance for recession vs boom
• EU angle: discuss constraints/rules and why they matter for Ireland

Interactive: Budget Balance Calculator

Ireland's 2023 Exchequer outturn (Dept. of Finance). Adjust the components to see how the balance changes — the formula panel updates live.

Surplus: Revenue exceeds expenditure by €8.0bn (2023 Exchequer outturn)

Source: Department of Finance, Exchequer Statement 2023.