Evaluate the likely macroeconomic effects of an increase in indirect taxes

Edexcel International A-Level Economics Unit 4 June 2026

In Slovakia the standard VAT (sales tax) rate was increased from 20% to 23% on 1 January 2025. Evaluate the likely macroeconomic effects of an increase in indirect taxes. Refer to a country of your choice in your answer. (January 2026)

Plan

• Paragraph 1
  • Argument: decrease in economic growth
  • Diagram: decrease in aggregate demand
  • Evaluation: depends on how the government use the tax revenue
• Paragraph 2
  • Argument: increase in cost-push inflation
  • Diagram: decrease in SRAS
  • Evaluation: depends on the type of goods that are taxed; demerit goods.
• Conclusion: overall can slow down growth and worsen inequality, can be good if used to solve specific market failures

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