Public Finance -unit 4 Flashcards
Define current expenditure
Day to day expenditure of government
Define capital expenditure
Long term investment by government
Define a transfer payment
Payment made from state to individual in a form of benefit for where there is no return
What is a direct tax
Tax on wealth and income
What is indirect tax
Taxes on expenditure
What is progressive tax
Proportion of income paid in tax rises as income increases
What is proportional tax
Proportion of income tax remains the same as income increases
What is regressive tax
Income tax falls as income increases
Why does an increase in tax lead to a downward multiplier effect on GDP
Because it represents a leakage from the circular flow of income
Why shape is the laffer curve
Like an n
Or an upside down u
On the laffer curve, what measurements are in the axis
Tax revenue on side, tax rate on bottom
Why would a government raise indirect taxes
To reduce the fiscal deficit
What is the difference between a fiscal deficit and national debt
National debt is the cumulative total of past government borrowing
Fiscal deficit is when expenditure exceeds revenue
What are the four elements of public finance
Public expenditure
Taxation
Public net borrowing
Public net debt
