Fiscal Policy Flashcards
What is national insurance
A direct tax paid by employees, employers adself employed to help fund state pension and welfare benefits
Some believe it is just an excuse to tax more
What did rishinsunak do to corporation tax in 2021
Increased from 19-25% for firms earning over £250,000
Firms earning under £50,000 pay 19%
Gradually increases from 50,000 to 250,000
What percentage of overall income tax fo the top 10% contribute
60%
When was the last time there was austerity
When George Osborn was exchequer from 2010-2016
What is austerity
Little government spending
Examples of direct taxes
Income tax, corporation tax, national insurance, dovidends
What are the top 3 tax contributions in the uk which the chancellor said she was freezing
Income tax
National insurance
Vat
What is indirect tax and why is it regressive
Vat, duty green tax
Everyone pays the same, more costly to those on lower wages
What are proportional taxes / flat taxes
Everyone pays the same % on tax
What is an argument for fishing Sunday raising corporation tax
It is equitable for larger companies to pay larger proportion of tax to bring down fiscal deficit as profits have been rising in recent years (some evidence of profit-push inflation)
Against - may lead to decrease in fdi and tax avoidance
What is profit-push inflation
When firms use their market power to push up prices, causing inflation
Implications of a budget deficit
May need to borrow money by issuing bonds - which can lead to increase in overall debt
What is the Uks percentage of debt to gdp
What is americas
Uk 99%
Us 123%
America get away with it as they have a much larger economy
How is a budget deficit financed
Issuing gov bonds which are sold too : individuals, financial institutions and financial governments
International blowing : imf or world bank
Central and can buy bonds or grant loans - “monetising the debt” typically done with caution as it can cause inflation and affect monetary policy
What impacts does the budget deficit have on aggregate demand
Debt increases government expenditure (g)
Lower taxes : households have more disposable income increasing consumption (c)
Multiplier effects : gov sending can grow the economy, increasing consumption and investment
Formula for aggregate demand
Ad = c + g + I + (e-I)
Negative effect of budget deficit on ad
Increased borrowing = crowding out effect
Higher interest rates = reduces private sector investment and FDI
Expectation of higher taxes = decreasing comsumption
When has the gov implemented fiscal policy
22/23 -uk borrowed £139billion 5.5% of gdp
21/22 - furlough scheme to help protect jobs during Covid (subsidised up to 80% of some wages and protected 11.7m jobs)
22/23 - cash transfers to households to help deal with rising energy prices
Why is it important to raise FDI
If not the burden may be passed down to individuals through fiscal policy
What were interest rates march 2009
0.5% encourage spending after the financial crisis
What were interest rates December 2021
0.5
What’s the difference between discretionary fiscal policy (eg furlough scheme) and automatic stabilisers
Automatic stabilisers : automatic fiscal changes as an economy mover through different stages of the business cycle
