4.5 Role Of The State In The Macroeconomy Flashcards
What are the factors affecting the size and composition of public expenditure?
- Changing incomes
- Changing age distributions
- Changing expectations
- The global financial crisis of 2008
What is a progressive tax system?
As incomes rise, a large percentage of income is paid in tax
What is a regressive tax system?
As incomes rise a smaller percentage of income is paid in tax. E.g. VAT
What is a proportional tax system?
Where the percentage of income paid in tax is constant no matter the level of income
What impact can effects of tax rate changes have?
- Incentive to work
- Tax revenues
- Income distribution
- Real output and employment
- Average price level
- The trade balance (X-M)
- Flows of foreign direct investment (FDI)
What are cyclical deficits?
Cyclical deficits occur due to downturns in the business/trade cycle usually a results of a recession
What are structural deficits?
Structural deficits are present even when an economy may be operating at full employment level of output
What are the factors that influence the size of fiscal deficits?
- State of the economy
- Housing market
- Political priorities
- Unforeseen events
What are the factors influencing the size of national debts?
- Size of fiscal deficits
- Government policies
What can the significance and size of deficits & national debts impact?
- Interest rates
- Debt servicing
- Inter generational equity - todays borrowing has to be paid back from tax revenue receives from future generations
- Rate of inflation
- Nations credit rating
- FDI
