Jamaica extended financial support

Government of Jamaica extended financial support to the population in the context of the COVID-19 crisis. Explain using public finance principles the reasons why a government might do this and what the government is attempting to accomplish by doing so? (25 marks)

In an effort to reduce alcohol consumption in Jamaica, the government of Jamaica (GOJ) is considering levying a $2/unit tax on the sale of coconuts (i.e., on the consumer). Suppose the demand curve for liquor is:

and the supply curve for liquor is:

State who bears the statutory incidence of a $2 per unit tax on the sale of liquor? And who bears the economic incidence of this tax?


Calculate the pre-tax and post-tax equilibria, and explain the new equilibrium results in terms of: consumer tax burden, producer tax burden, tax wedge, and government revenue.


Provide a carefully labelled graphical analysis of your answers in part a(ii) [Only a sketch is required here: demand and supply curves do not have to be plotted to scale]. Indicate on your graph however, with accuracy, the pre-tax and post-tax equilibria, consumer tax burden, producer tax burden, and government revenue.


Explain how good governance may be viewed as a public good using an example that had been implemented by the Jamaican government in 2013. Describe the governance mechanism implemented and comment on its success.                                                                  (25 marks)

Describe and explain the considerations that the Jamaican government must make in its design of a tax system. Using your answer comment on the structure of the Jamaican tax system using the summary of taxY revenue by type presented in the central government tables. (25 marks)