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Economics iGCSE > 4.3 - Fiscal Policy > Flashcards

4.3 - Fiscal Policy Flashcards

1
Q

Government budget

A

A financial statement showing the forecasted government revenue and expenditure in the coming fiscal year

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2
Q

Characteristics of government budget (3)

A
  • lays out the amount the government expects to receive as revenue in taxes and other incomes
  • how and where it will use this revenue to finance its various spending endeavours
  • aimed to be balanced
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3
Q

Balanced budget

A

government revenue = government expenditure

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4
Q

Budget deficit

A

government revenue < government expenditure

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5
Q

Budget surplus

A

government revenue > government expenditure

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6
Q

Public debt

A

The cumulation total of past government borrowing which has to be repaid (including interest)

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7
Q

Aggregate demand

A

A measurement of the total amount of demand for all finished goods and services produced in an economy (same formula as GDP)

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8
Q

Public expenditure

A

Spending made by the government of a country on collective or individual needs and wants of public goods and public services

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9
Q

Three reasons for public spending

A
  1. Current expenditures
  2. Capital expenditures
  3. Transfer payments
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10
Q

Current expenditures

A

Include daily payments required to run the government and the public sector (wages, salaries of public employees like teachers, military etc.) and **includes payments for public goods/services **(such as medicines for government run hospitals)

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11
Q

Capital expenditures

A

Investments in infrastructure and capital equipment (e.g. new hospitals and schools, railways etc.)

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12
Q

Transfer payments

A

Payments made by the government for which no goods or services are exchanges (e.g. unemployment benefits etc.)
- does not contribute to GDP as income is only transferred from one group to another

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13
Q

Five reasons for taxation

A
  1. Correct market failure
  2. Earn government revenue
  3. Promote equity
  4. Support firms
  5. Support poorer households
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14
Q

How does taxation help correct market failure?

A

The government aims to subsidise merit goods & tax demerit goods to address market failure

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15
Q

How does taxation help earn government revenue?

A

Revenue to fund the provision of essential services, public and merit goods is collected through taxation

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16
Q

How does taxation help promote equity?

A

The wealthy are taxed to provide funds that can be utilised in reducing the opportunity gap between the rich & poor

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17
Q

How does taxation help support firms?

A

In a global economy, governments choose to support key industries so as to help them remain competitive & taxation provides the funds to do this

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18
Q

How does taxation help support poorer households?

A

Intervention seeks to redistribute income (tax the rich and give to the poor) so as to reduce the impact of poverty

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19
Q

Direct taxes

A

Imposed on income and profits and are directly paid to the government by the individual or firm

20
Q

Examples of direct taxes (name 3)

A
  • income tax
  • corporation tax
  • capital gains tax
  • national insurance contributions
  • inheritance tax
21
Q

Indirect tax

A

Imposed on spending: the less a consumer spends the less indirect tay they pay

22
Q

Examples of indirect taxes (name 2)

A
  • VAT
  • taxes on demerit goods
  • excise duties on fuel
23
Q

Tax revenues to the government (name 3)

A
  • Income tax
  • Corporation tax
  • Inheritance tax
  • Sales tax
  • Import tax
24
Q

Non-tax revenues to the government (name 3)

A
  • Fines, tolls, fees etc.
  • Forein aid (goods lent by another country)
  • Loans from banks
  • Donations
  • Interest payments on loans
  • Revenue from state-owned enterpises
  • Rents
  • Sale of assets (such as governmetn owned industries)
25
Q

Income tax

A

A tax levied directly on personal income

26
Q

Corporation tax

A

A tax levied on corporations’ profits

27
Q

Inheritance tax

A

A tax levied on property and money acquired by gift or inheritance

28
Q

Sales tax

A

A tax on sales or on the receipts from sales (such as VAT)

29
Q

Import taxes

A

A tax collected on imports and some exports by a country’s custom authorities

30
Q

Excise duties

A

Indirect inland tax imposed on certain unhealthy goods and services (e.g. alcohol, tobacco, gambking etc.)

31
Q

Customs duties

A

Indirect cross-border taxes on foreign imports

32
Q

Capital gains tax

A

A direct tax on earnings made from investments such as shares and private property

33
Q

Stamp duty

A

A progressive tax paid on the sale of commercial or residential property

34
Q

Carbon tax

A

A tax imposed on vehicle manufacturers or firms that produce excessive carbon emissions

35
Q

Windfall tax

A

Charged on indiciduals or firms that gain an unexpected one-off amount of money (e.g. lottery, company takeover)

36
Q

Progressive tax system

A

As income rises, a larger percentage of income is paid in tax

37
Q

Regressive taxation

A

As income rises, a smaller percentage of income is paid in tax
- all indirect taxes are regressive

38
Q

Proportional taxation

A

As income rises, the same percentage of income is paid in tax

39
Q

Marginal tax rates

A

The amount of additional tax paid for every additional dollar earned as income

40
Q

The six principles of taxation

A
  1. Simple: should know what, when, where and how to pay tax
  2. Fair (equity): should reflect taxpayer’s ability to pay
  3. Convenient: system to collect should be easy and provide choice
  4. Efficient: management by government should not be expensive or wasteful
  5. Fit for purpose: no unintended side effect
  6. Flexible: easy to adjust as required by changes in economy
41
Q

The seven impacts of taxation

A
  1. Incentive to work
  2. Government tax revenues
  3. Income distribution
  4. Economics growth
  5. Trade balance (exports - imports)
  6. Business location
42
Q

Fiscal policy

A

Fiscal policy is the use of taxation and government expenditure strategies to influence the level of economic activity and achieve macroeconomic aims

43
Q

Expansionary fiscal policy

A

includes reducing taxes or increasing government spending
* used in order to generate further economic growth

44
Q

Contractionary fiscal policy

A

includes increasing taxes or decreasing government spending
* in order to slow down economic growth or reduce inflation

45
Q

Discretionary income

A

Income that remains after taxes and necessity purchases are accounted for

46
Q

Strengths of fiscal policy (name 4)

A
  • Spending can be trageted on specific industries
  • Short time lag (quick effect)
  • Redistribution of income through taxation
  • Reduces negative externalities
  • Increased consumption of merit/public goods
  • Short term government spending can lead to an increase in the total supply of an economy
47
Q

Weaknesses of fiscal policy

A
  • Policies can fluctuate significantly when new governments are elected
  • Increased government spending can create budget deficits
    * Repaying this debt may lead to austerity on future generations
  • Conflicts between objectives
    * E.g. Cutting taxes to increase economic growth may cause inflation

Economics iGCSE (27 decks)

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