In January 2017, the Colombian government implemented a major tax reform aimed at stabilizing public finances. The central element of this package was an increase in the general Value Added Tax (VAT) rate from 16% to 19%. Despite government efforts to shield lower-income families through targeted transfers, the measure caused a sharp drop in domestic demand. In the months following the hike, sales of durable goods, such as vehicles and household appliances, plummeted. Facing higher production costs and a contraction in consumer demand, manufacturing firms and major wholesale distributors suspended capital investments and initiated layoffs to protect their profit margins, particularly in urban industrial hubs.
Using information from the extract, explain how the increase in the Value Added Tax (VAT) may have affected unemployment in Colombia after 2017.
68 exam-style questions on OCR A Level Economics Fiscal policy. Each one has a worked solution and a mark scheme showing where the marks go.