Suppose that Spain has a workforce of 22.85 million people, and that the average salary for each person is €24,200 annually. Spain has imports of €290.85 billion and exports of €200.13 billion. If the Spanish government levies a 7% tariff on exports, an 18% tariff on imports, and a 21% income tax, how will the revenue gained from tariffs and the revenue gained from income tax compare?
Answer
A
The government will earn €80.7214 billion more from tariffs than from income tax.
B
The government will earn €29.5030 billion more from tariffs than from income tax.
C
The government will earn €63.7707 billion more from income tax than from tariffs.
D
The government will earn €49.7616 billion more from income tax than from tariffs.
Explanation
Tariff revenue is 7% of exports plus 18% of imports: (€200.13 billion × 0.07) + (€290.85 billion × 0.18) = €66.3621 billion. Income-tax revenue is 22.85 million × €24,200 × 0.21 = €116.1237 billion. Income tax therefore brings in €116.1237 billion − €66.3621 billion = €49.7616 billion more, matching the choice that says income-tax revenue is €49.7616 billion greater.
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