Fiscal Policy

Question 1

What is Fiscal policy?

Answer 1

The policy instruments used by the government of taxing and spending to influence economic activity

Question 2

What is Fiscal policy?

Answer 2

The use of public finance instruments to influence the working of the economic system to maximize economic welfare

Question 3

What are some instruments of fiscal policy

Answer 3

Revenue instruments:
Taxes
Fees
Prices of Public Utilities
Sales of Assets

Expenditure Instruments:
Real Expenditures
Transfers

Economic and social policy instruments

Question 4

True/ False: Taxes are the primary revenue- generating instrument for governments.

Answer 4

True

Question 5

How can taxes help the government objectives?

Answer 5

Promote income redistribution, influence consumer behaviour and patterns of exenditure.

Question 6

What are fees that governments may charge?

Answer 6

Governments may charge fees for various services or licenses. These fees can range from administrative fees for government services to licensing fees for specific activities such as operating a business or professional practice.

Question 7

What can governments set prices for?

Answer 7

Governments may set prices for essential public utilities such as electricity, water, or public transportation services.

Question 8

How can governments raise revenue through asset management?

Answer 8

Governments may raise revenue by selling assets such as land, buildings, or state-owned enterprises. This can also be used as a means of privatization or restructuring of public assets.

Question 9

What are real expenditures?

Answer 9

Real expenditures are spending on things like building roads, providing healthcare, education, and defense. These expenses directly help the economy and people’s well-being.

Question 10

What are transfers in government spending?

Answer 10

Transfers are payments from the government to individuals or groups without expecting anything in return. They include things like welfare, pensions, and subsidies to help people in need or boost certain parts of the economy.

Question 11

How can fiscal policy be used to address output gaps in developing countries?

Answer 11

Countercyclical Fiscal Policy
Tackling inflation/deflation
Aiding current account deficits
Infrastructure Investment
Human Capital Investment
Social Safety Nets
Structural reforms
Debt sustainability

Question 12

Why is the utilisation of Fiscal policy Important?

Answer 12

Allocation of Resources
To address Inflation
Redistribution of Income
Economic Stability and Growth

Question 13

What is a fiscal deficit?

Answer 13

This refers to the difference between a government’s total revenue and its total expenditure in a fiscal year. It represents the amount by which the government spending exceeds its revenue during a specific period.
A fiscal deficit occurs when a government spends more money than it generates through taxes and other sources of income where borrowing covers the shortfall.

Question 14

What are the causes of fiscal deficits?

Answer 14

export boom
worsening terms of trade
economic downturns
excessive government spending
tax cuts
interest payments
external shocks
Structural issues

Question 15

How can fiscal deficits be addressed?

Answer 15

1) Containing the deficit: Reduced Spending
Raising govt receipts
Diversification of Income
2) Financing the deficit: Monetary Policy/ expansion
Borrowing from public/ International banks
Sale of assets

Question 16

what is public choice theory?

Answer 16

The theory states that politicians and bureaucrats act in their own self interest when making decisions within the public sector. The study of politics should be approached similarly to how one would study market behavior. Social choice theory is the study of aggregate decisions and whether they reflect individual interests

Question 17

Who are the three maximizing groups of the political marketplace?

Answer 17

Elected Officials
Civil Servants
Voters

Question 18

what are the assumptions under which social choice theory operate?

Answer 18

Those who lose are aware of their losses in order to effect change
An assumption of rational ignorance- persons know enough about what they are talking about
There is no such thing as market failure, failure would be due to government interventions not achieving the desired effect.

Question 19

Activities involved in managing an economy

Answer 19

Allocation of Resources
Redistribution of income
Stabilisation of the economy
Promotion of economic growth

Question 20

Ways social choice theory affects management of economy

Answer 20

Public Goods Provision
Income distribution
Social Welfare functions
Voting systems
Decision making processes

Question 21

Type of Information found in estimates of revenues

Answer 21

Is separated into departments with all heads of revenue in the government. These heads of revenue are: tax revenue, non- tax revenue, capital receipts and financing.
Taxes include: taxes on income and profits, taxes on goods and services including licenses, permits,, VAT, Certificates etc., property income, taxes on property, taxes on international trade: excise duties, import duties, special taxes.
Non tax revenue: administrative fees, registrations, fines and forfeitures, pension contributions, non-industrial sales.
Capital receipts: sale of assets, unspent balances, grants, extraordinary, transfers from student loan fund, transfers from funds.
Financing: repayment of loans by public enterprises, repayment of loans by other enterprises, repayment of other loans, repayment of international loans.

Question 22

Type of information found in estimates of expenditures

Answer 22

Is separated into departments with all heads of expenditure in the government, some of these departments are all of the ministries, office of the president and prime minister, service commission, courts, municipal bodies and statutory bodies

Expenses for each department is totalled and a list of total expenditures is provided

Under each department; Salaries, Allowances, Sundry expenses, Travel Expenses, Pensions, General Administration, Charges on public debt, Details of establishments (a list of persons working in that department) as well as estimates for projects undertaken by the government.

Question 23

What are the Topics discussed by Tanzi in “Role of the State and the Quality of the public sector”

Answer 23

Role of the State
The Importance of Rules
Political and Procedural rules
The Quality of Public Institutions
Measuring the Quality of the Public Sector

Question 24

What is the Normative Role of the state according to Tanzi

Answer 24

1) It must Establish rules and institutions aimed at the enforcement of contracts and the protection of property rights. Through these institutions the state must expand the economy
2) Promotion of growth and employment through market intervention or provision of information
3)It must provide goods and deal with externalities
4) Stabilization of economic activity
5) Redistribution of Income- a distribution which is consistnet with the prevailing views of society.

Question 25

What are the Three types of Important rule framework which guide economic activity and public intervention?

Answer 25

A) The Constitution
B) Laws
C) Regulations

Question 26

What type of rule is one of the major causes of corruption and why?

Answer 26

Regulations are one of the major causes of corruption because they are abused by bureaucrats. The reason for this is that many countries have too many useless regulations which may be used to find loopholes.

Question 27

What does Tanzi say about Political and Procedural Rules

Answer 27

Political arrangements can have significant impact on fiscal and macroeconomic outcomes. Tanzi suggests to change the incentives under which policymakers operate.

Question 28

The Quality of the public sector- what are two aspects discussed by Tanzi

Answer 28

Synergy
Enforcement Mechanisms

Question 29

What does synergy essentially mean in relation to the quality of the public sector

Answer 29

Synergy means that the institutions support one another. It is not possible to have one perfectly performing institution while the others are performing poorly.

Question 30

what are some enforcement mechanisms issues stated by Tanzi

Answer 30

The weakness of cash accounting
the focus on quantitative research

Question 31

how does tanzi address the issues relating to enforcement mechansims

Answer 31

Instead of cash accounting use accrual accounting
Do consumer surveys or have a citizens charter

Question 32

How does Tanzi suggest to measure the General Quality of the public sector

Answer 32

Survey of perception: survey of corruption
The social and economic performance of a country
Transparency of fiscal policies and fiscal institutions