Fiscal Policy Flashcards
What is the crowding out debate?
Govt spending (national debt) crowds out (squeezes) private investment as the government needs revenue in order to spend.
What is the loan able funds theory?
In this model the supply of funds comes from savings and the demand comes from investment opportunities
Increasing interest rates increases supply of funds
Decreasing interest rates decreases the supply of funds as there will be more borrowing
What is the RPI rate?
Includes mortgage interest payments which means it’s heavily influenced by interest rates.
The government charges us this one
What is the CPI?
Measures take no account of housing costs but factors in all other goods and services
What is CPH?
Includes housing costs but uses an approach called rental equivalence; this is not the mortgage payments but how much householder would pay for equivalent property
why do we have taxes?
- fund the public sector
- protect domestic businesses
- reduce wage disparities
- influence the spending pattern
- can correct other forms of market failure such as monopolies (windfall tax)
what are the canons of taxation?
- economical
- equitable
- convenient
- certain
- flexible
- efficient
what does the efficient canon of taxation mean?
tax must achieve what it is intended to do
what does the equitable canon of taxation mean?
based on the ability to pay and higher earners pay a higher proportion of their income
what is hypothecation?
when taxes are earmarked for a specific purpose
arguments for indirect tax?
- influence spending patterns
- incentive effects (save)
- internalising externalities
- choice
- cheaper to administer
arguments against indirect tax
- inflationary pressures
- crime
- make income distribution more unequal because of their regressive effects
