3. Implementing policy Flashcards
budget deficit
when govt spending greater than tax revenue
structural budget defecit
budget defecit at full employment
cyclical budget defecit
budget defecit in recession
national debt
total stock of govt debt over time
pros of budget defecit
- high growth/lower unemployment
- LR benefit of education/infrastructure
- redistribution of income, benefits/less tax
- incentive of tax cuts
- crowding in
cons of budget defecit
- deterioration of govt finances, low confidence in buying gov bonds, burden to future generations
- crowding out
- X inefficiency, costs are not minimised
crowding in
demand up through gov spending, promote private sector investment
crowd out
automatic stabilisers
progressive income tax
welfare benefits
structural budget surplus
budget surplus at FE
cyclical budget surplus
budget surplus in a BOOM
pros of budget surplus
- improve gov finances, inward FDI
- greater flexibility for fiscal policy
- less crowding out
- lower inflation and CA deficit
cons of budget defecit
demand shock
lower quality of public services
LR returns ignored
income inequality risk, benefits cut?regressive tax?
evaluative points of fiscal policy
size out output gap
size of multiplier
business confidence
state of gov finances
laffer curve
automatic stabilisers
automatic stabilisers boom and rescission
automatic
- income up, workers pushed into higher tax bands, slows consumption
- unemployment benefits down
reverse for a recession
laffer curve
tax revenue increases up to a point, past that point it decreases
- disincentive to work/less entrepreneurial
- emigration of high skilled workers
- tax avoidance more likely
- businesses leave
