3.5 - fiscal policy Flashcards
government spending
total amount of money spent by the government in a given period of time
fiscal policy is used to achieve: ….
economic growth, low unemployment, price stability, a balance in the balance of payments
direct tax
tax on income or wealth
government revenue
the source of finance for gov spending
direct tax in uk:
income tax, NICs, corporation tax
indirect tax
tax on spending, often defined as a tax on goods and services
indirect taxes in UK:
VAT, excise duties, insurance premium tax, air passenger duty, gambling duties
balanced government budget
when gov’s revenue is equal to its expenditure/saving
budget deficit
when gov expenditure > revenue
budget surplus
gov’s revenue > expenditure
fiscal policy
a policy that uses taxation and gov spending to affect the economy as a whole
fiscal policy can be used in order to achieve:
economic growth, price stability, low unemployment, a balance of payments
how can a budget deficit be used to achieve economic objectives
an increase in gov spending, a reduction in taxes
how can a budget surplus be used to achieve economic objectives
a decrease in gov spending, an increase in taxes
income and wealth redistribution
government action, using mainly taxation and benefits, to reduce inequalities of income and wealth
progressive tax
a tax which takes a greater % of tax the higher the income
examples of excise duty
tobacco, alcohol, vehicle fuel
why do excise duties have high taxations
it is a negative externality
public sector
anything that is produced, sold or provided by organisations owned and run by the government.
what does the government spend money on
social protection (pensions and welfare) - system of security benefits e.g. state pension, child benefit
NHS - to increase welfare of population
education - to increase welfare of the population
what does government revenue mainly come from
income tax
