6. Fiscal Policies Flashcards
What is a Fiscal policy?
Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy.
(G & T)
What is government current expenditure?
This is Current spending, which is expenditure on wages and raw materials.
Current spending is short term and has to be renewed each year.
What is government capital expenditure?
This is Capital spending, which is spending on physical assets like roads, bridges, hospital buildings and equipment.
Capital spending is long term as it does not have to be renewed each year - it is also called spending on ‘social capital’.
What is the Marginal tax rate?
Marginal Tax rates are the % of tax charged on the last pound of earnings you made.
What is the average tax rate?
The average tax rate is the total you pay/gross income x 100. The average will always be less than the marginal.
What is a Direct tax?
Direct taxes are mainly targeted at income and capital. They are charged directly to a business or individual.
What is an Indirect tax?
Indirect taxes are mainly targeted on spending. They are levied (charged) on products or services.
What are the 3 systems of Taxation?
- Regressive
- Proportional
- Progressive
What is a regressive system of taxation?
A regressive tax means those on low incomes pay a higher % of tax. For example excise duties such as beer tax, cigarettes etc.
What is a proportional system of Taxation?
In a proportional system, you pay the same % regardless of Income.
What is a progressive system of taxation?
A progressive tax is one which is charged at a higher rate for higher earners.
E.g. Income Tax
What does the Laffer curve show?
To show the relationship between tax rates and the amount of tax revenue collected by governments.
Laffer’s main premise that the more an activity such as production is taxed, the less of it is generated. Likewise, the less an activity is taxed, the more of it is generated
