Fiscal Policy
Fiscal Policy
- The change in expenditures or tax revenue of the federal government
- Can either increase or decrease taxes or spending
Types of Budget
- Balanced Budget = Rev. = Expenditures
- Deficit = Rev. < Expenditures
- When in deficit, gov. borrows from
- Individuals
- Corporations
- Financial institutions
- Foreign entities and countires
- Surplus = Rev. > Expenditures
- Gov. Debt = Sum of deficits - sum of surplus
- Discretionary (action) -
- Expansionary when in deficit
- Combats recession
- Increased spendng; Decreased taxes
- Contractionary when in surplus
- Combats inflation
- Decreased spending; Increased taxes
- Increase/decrease gov. spending or taxes to get back FE (Fiscal policy response to economic problems)
- Non-discretionary (wait)
- Automatic or built-in stabilizers - include unemployment compensation and marginal taxes; they happen without policy makers
Tax Systems
- Progressive - Avg. tax rate rises with GDP (Tax revenue/GDP)
- Proportional - Avg. tax rate remains constant as GDP changes
- Regressive - Avg. tax rate falls with GDP
- More progressive = more stability
Personally, I believe in progressive taxation. However, I understand that taxation systems are best suited to whatever unique condition an economy may be currently in. What is your opinion on the most effective tax system?
ReplyDeleteThank you for very clearly explaining the different types of fiscal policies! I know have a deeper understanding that Automatic or built-in stabilizers involve no government intervention! So that would include things like Social Security and welfare! Yay! Yay! Yay!
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