fiscal policy Flashcards
what is social insurance?
the insurance provided by the government against bad outcomes such as unemployment, illness, disability, or outliving your savings
what accounts for 80% of total fed gov spending?
social insurance and military spending
what does the state gov. spend on?
states also spend much of their money on social insurance, but they focus it on the unemployed, the poor, and retired state gov workers
states spend about 20% of their budget on education, most of which goes to higher education
states also spend money in healthcare
what does the local gov. spend on?
education accounts for the greatest share of local gov spending
much of local spending goes to primary and secondary schools and other community service s
what are the trends observed in government spending?
federal gov spending has been stable in recent decades
state and local gov spending has trended upward in recent decade
how has social insurance changed over time?
social insurance spending has grown over time
increased spending is due to
- creation of CHIP
- expansion of Medicare and Medicaid
- insurance subsidies included in the affordable care act
what is mandatory spending?
spending on programs that does not get determined annually. it is instead set into law
what is discretionary spending?
spending that Congress appropriates annually
where does the federal government’s revenue come from?
primarily from taxing people’s income
what is income tax?
taxes collected on all income regardless of its source (work and unearned)
what are payroll taxes?
taxes on earned income
what is taxable income?
the amount of income that you pay taxes on
what is marginal tax rate?
the tax rate you pay if you earn another dollar
what is progression tax?
those with more income tend to pay a higher share of their income in tax
what are corporate taxes?
6% of federal taxes are collected from corporations
the taxes are paid primarily by the owners of the corporations
workers also bear the burden of corporate taxes through lower wages
what types of tax does the state and local gov collect?
sales, property and income
what is a sales tax?
a tax on purchases that’s typically a percentage of the purchase price of goods and services
what is an excise tax?
a tax on a specific product. based on quantity purchased. ex. gasoline and cigs
what is a property tax?
a tax on the value of property such as real estate
what are tax expenditures?
special deductions, exemptions, or credits that lower your tax obligations to encourage you to engage in certain kinds of activities
they are a hidden form of government spending
what are the three reasons why tax expenditures generally benefit those with high incomes?
- the value of tax exclusions and deductions is higher when your income tax rate is higher
- higher-income people tend to buy more tax-preferred goods and services
- most tax expenditures don’t provide much help if your income tax bill is zero
What is regulation?
allows the government to require spending, while others pay the bills
what is the fiscal policy?
the government’s use of spending and tax policies to attempt to stabilize the economy
involve policies aimed at keeping actual GDP close to potential output
describe fiscal policy as a countercyclical force
higher spending and lower taxes will boost output
lower spending and higher taxes reduce output
what is discretionary fiscal policy?
policy that temporarily changes gov spending or taxes to boost or slow the economy
timely implementation if discretionary fiscal policy is difficult because there are delays at every step of the process
when does a fiscal policy works best when it is:
- timely
- targeted
- temporary
what is crowding out?
crowding out occurs when private spending (particularly investment) declines after an increase in government borrowing
government spending can crowd out private investment spending
what is an automatic stabilizer?
refers to spending and tax programs that adjust as the economy expands and contracts, without policy makers taking any action
automatic stabilizers are timely, targeted, and temporary
describe fiscal vs. monetary policy interactions
monetary policy is more nimble than fiscal policy (monetary policy can be implemented quickly but it takes time for these to have an effect)
fiscal policy can be more targeted
fiscal policy is particularly important at the zero bound
what is a budget deficit?
the difference between spending and revenue in a year in which spending exceeds revenues
may be a timing mismatch
may reflect short-run political incentives
requiring a balanced budget could make business cycles worse
what is a budget surplus?
the difference between spending and revenue in a year in which revenue exceeds spending
describe federal gov deficits
- the federal gov typically runs deficits
- persistent large deficits are fairly new
- wars require a surge in spending that results in deficits
- business cycles create deficit cycles
what is gross gov debt?
the total accumulated amount of money the gov owes is called the gross gov debt
what is the net gov debt?
the debt that the gov owes to individuals, businesses, and other gov both here and abroad
what is an unfunded liability?
are a commitment to incur expenses in the future without a plan to pay for those expenses
they are a driver in debt projections
