5- role of the state in the macro economy Flashcards
usages of public expenditure
-to control AD
-Achieve macroeconomic objectives
-to improve equity and equality
-can correct market failure
types of public expenditure
-capital government expenditure
(spending on investment goods like infrastructure)
-transfer payments
(money taken from one group and given to another)
-interest payments for national debt
what are the major areas of expenditure
healthcare 18%
transport 2%
welfare 15%
pensions 20%
education 12%
protection 4%
defence 6%
composition and size of public expenditure
in lower income countries, expenditure will be lower due to lower tax revenues
impacts of expenditure
-productivity and growth^
-living standards^
-crowding out^
-level of taxation^
-equality^
Types of taxation
-progressive
-proportional
-regressive
progresive tax
as income rises, higher percentage of tax is paid (income tax)
regressive tax
as income rises, a smaller percentage of tax is paid (VAT)
proportional tax
everyone spends the same percentage of income on tax
impacts of tax changes
-incentives to work
-income distribution
-real output and employment
-price level
-trade balance
-FDI flows
automatic stabilisers
reduce the impact of changes in the economy
discrete fiscal policy
the deliberate manipulation of expenditure and taxation
fiscal deficit
when the government spends more than it receives
national debt
sum of all the government debts built up over man years
structural deficit
the deficit that occurs when the cyclical deficit is 0. has no relation to the state of the economy, likely that debt will grow over time
