Fiscal and supply-side policy

Question 1

direct taxes d

Answer 1

taxes levied directly on the income of an individual or organisation

Question 2

fiscal policy d

Answer 2

the use of government spending and taxation to meet economic objectives

Question 3

what are the main objectives of the UK tax system

Answer 3

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

Question 4

examples of direct taxes

Answer 4

income tax, corporation tax

Question 5

example of indirect tax

Answer 5

VAT

Question 6

canons of taxation d

Answer 6

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

Question 7

principles of taxation d

Answer 7

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

Question 8

horizontal equity d

Answer 8

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

Question 9

vertical equity d

Answer 9

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

Question 10

hypothecation d

Answer 10

when taxes are earmarked for a specific purpose

Question 11

benefit principle d

Answer 11

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

Question 12

what are the canons of taxation

Answer 12

economical
equitable
convenient
certain

Question 13

explain canon of taxation, convenient

Answer 13

the payment method and timing should be convenient to the taxpayer

Question 14

explain canon of taxation, economical

Answer 14

simple and cheap to collect

Question 15

explain canon of taxation, certain

Answer 15

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

Question 16

what are the two additional principles of taxation

Answer 16

efficiency and flexibility

Question 17

explain principle of taxation, efficient

Answer 17

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

Question 18

explain principle of taxation, flexible

Answer 18

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

Question 19

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

Answer 19

benefit principle

Question 20

example of hypothecation

Answer 20

tobacco duty used by NHS to treat smoking-related diseases

Question 21

benefits of hypothecation

Answer 21

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

Question 22

arguments for indirect taxation

Answer 22

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

Question 23

progressive tax d

Answer 23

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

Question 24

regressive tax d

Answer 24

where the proportion paid in tax falls as income increases

Question 25

arguments against indirect taxation

Answer 25

distributional effects (income more unequal) inflationary effects crime

Question 26

proportional tax d

Answer 26

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

Question 27

what is the current tax-free allowance

Answer 27

£11,000

Question 28

what can government expenditure be divided into

Answer 28

capital expenditure current expenditure transfer payments

Question 29

capital expenditure d

Answer 29

government expenditure to improve the productive capacity of the nation

Question 30

example of capital expenditure

Answer 30

hospitals, schools, roads

Question 31

current expenditure d

Answer 31

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

Question 32

example of current expenditure

Answer 32

wages of public sector workers

Question 33

transfer payments d (government expenditure)

Answer 33

payments to individuals for which no service is given in return

Question 34

example of transfer payment

Answer 34

state benefits

Question 35

budget deficit/ surplus d

Answer 35

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

Question 36

demand management d

Answer 36

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

Question 37

expansionary fiscal policy d

Answer 37

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

Question 38

contractionary or deflationary fiscal policy d

Answer 38

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

Question 39

public sector net cash requirement (PSNCR) d

Answer 39

the difference between government spending and revenue

Question 40

reasons why a budget deficit poses a problem

Answer 40

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

Question 41

what is 'crowding out'

Answer 41

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

Question 42

possible benefits of a budget deficit

Answer 42

stimulus to growth | demand management

Question 43

foreign direct investment d

Answer 43

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

Question 44

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

Answer 44

Ireland

Question 45

what are the two main problems with fiscal policy

Answer 45

time lags and the potential for 'crowding out'

Question 46

laffer curve d

Answer 46

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

Question 47

what does the laffer curve show

Answer 47

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

Question 48

examples of supply-side policies

Answer 48

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

Question 49

why is education and training a supply-side policy

Answer 49

boost the productivity of labour

Question 50

how are trade union reforms a supply-side policy

Answer 50

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