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Economics Unit 4 > Fiscal and supply-side policy > Flashcards

Fiscal and supply-side policy Flashcards

1
Q

direct taxes d

A

taxes levied directly on the income of an individual or organisation

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2
Q

fiscal policy d

A

the use of government spending and taxation to meet economic objectives

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3
Q

what are the main objectives of the UK tax system

A

fund government spending
managing economy as a whole
redistribution of income
correcting market failure

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4
Q

examples of direct taxes

A

income tax, corporation tax

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5
Q

example of indirect tax

A

VAT

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6
Q

canons of taxation d

A

the characteristics of a ‘good tax’, after Adam Smith

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7
Q

principles of taxation d

A

a modern list of characteristics of a ‘good tax’ system

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8
Q

horizontal equity d

A

when people or firms with the same income and financial circumstances pay the same amount of tax

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9
Q

vertical equity d

A

when the amount that people and firms pay is based on their ability to pay

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10
Q

hypothecation d

A

when taxes are earmarked for a specific purpose

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11
Q

benefit principle d

A

the argument that taxes should be linked to the benefits received by taxpayers

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12
Q

what are the canons of taxation

A

economical
equitable
convenient
certain

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13
Q

explain canon of taxation, convenient

A

the payment method and timing should be convenient to the taxpayer

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14
Q

explain canon of taxation, economical

A

simple and cheap to collect

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15
Q

explain canon of taxation, certain

A

taxpayers should understand how the system works and should be clear about what and when to pay

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16
Q

what are the two additional principles of taxation

A

efficiency and flexibility

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17
Q

explain principle of taxation, efficient

A

should meet its aims whilst minimising negative distortions such as reducing incentives to work

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18
Q

explain principle of taxation, flexible

A

structure and rates must be capable of easy alteration in response to changing economic conditions

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19
Q

what is the argument that the taxes should be linked to the benefits that taxpayers receive from the tax

A

benefit principle

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20
Q

example of hypothecation

A

tobacco duty used by NHS to treat smoking-related diseases

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21
Q

benefits of hypothecation

A

reveals how much people are willing to pay for particular services, take money from negative externalities to compensate those suffering

22
Q

arguments for indirect taxation

A 
influence spending patterns
correcting externalities
incentive effects
choice (could not buy products)
flexibility (easily changed)
23
Q

progressive tax d

A

where the proportion of a person’s income paid in tax increases as income increases (DAD !!!!)

24
Q

regressive tax d

A

where the proportion paid in tax falls as income increases

25
Q

arguments against indirect taxation

A

distributional effects (income more unequal)
inflationary effects
crime

26
Q

proportional tax d

A

where the proportion of income paid in tax stays the same as income increases

27
Q

what is the current tax-free allowance

A

£11,000

28
Q

what can government expenditure be divided into

A

capital expenditure
current expenditure
transfer payments

29
Q

capital expenditure d

A

government expenditure to improve the productive capacity of the nation

30
Q

example of capital expenditure

A

hospitals, schools, roads

31
Q

current expenditure d

A

government spending on the day-to-day running of the public sector

32
Q

example of current expenditure

A

wages of public sector workers

33
Q

transfer payments d (government expenditure)

A

payments to individuals for which no service is given in return

34
Q

example of transfer payment

A

state benefits

35
Q

budget deficit/ surplus d

A

where government spending / receipts exceeds government receipts / spending in a financial year

36
Q

demand management d

A

use of macroeconomic policy to manipulate the level of aggregate demand in the economy

37
Q

expansionary fiscal policy d

A

where the government runs a large budget deficit in order to boost aggregate demand and economic activity

38
Q

contractionary or deflationary fiscal policy d

A

where the government runs a large budget surplus in order to depress the level of aggregate demand and economic activity

39
Q

public sector net cash requirement (PSNCR) d

A

the difference between government spending and revenue

40
Q

reasons why a budget deficit poses a problem

A

financing the deficit (interest)
growing national debt
fiscal ‘crowding out’

41
Q

what is ‘crowding out’

A

increasing deficit leads to higher interest rates and taxation, thereby reducing private sector expenditure

42
Q

possible benefits of a budget deficit

A

stimulus to growth

demand management

43
Q

foreign direct investment d

A

investments in the domestic economy in new manufacturing plants by foreign multinational companies

44
Q

what is an example of when a favourable tax regime has attracted large amounts of FDI

A

Ireland

45
Q

what are the two main problems with fiscal policy

A

time lags and the potential for ‘crowding out’

46
Q

laffer curve d

A

a model that shows the theoretical relationship between tax rates and tax revenues

47
Q

what does the laffer curve show

A

high tax levels create a disincentive to work which will have a negative impact on total tax revenues

48
Q

examples of supply-side policies

A

lower rates of income tax
reducing state welfare benefits
education and training
trade union reform

49
Q

why is education and training a supply-side policy

A

boost the productivity of labour

50
Q

how are trade union reforms a supply-side policy

A

reducing power of trade unions reduces labour costs and means workers can work longer hours etc.

Economics Unit 4 (9 decks)

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