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Freakonomics (macro) > Fiscal and Supply side policies > Flashcards

Fiscal and Supply side policies Flashcards

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1
Q

How much do less than 1% of tax payers in the UK contribute to total revenue

A
  • 26%
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2
Q

How many dont pay income tax in UK

A

40%

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3
Q

When were properties last valued

A
  • 1991
  • Council tax rates incorrect
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4
Q

What is fiscal policy

A
  • Any policy relating to government spending, taxation and borrowing
  • Govt led
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5
Q

What is monetary policy

A
  • Any policy relating to interest rate, money supply or managing exchange rate
  • Central bank led
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6
Q

What is supply side policy

A
  • Any policy intending to increase the productive potential of the economy, ie shift LRAS to the right
  • Increasing quantity and/or quality of the F.O.Ps
  • Free market vs interventionist
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7
Q

Fiscal policy goals

A
  • Keep inflation on target (2%)
  • Stimulate economic growth and employment
  • Tackle market failure
  • Provide welfare state- ‘safety net’
  • Improve competitiveness
  • Redistribute income and wealth
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8
Q

What is expansionary fiscal policy

A

Designed to boost AD/AS (growth)

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9
Q

What is contractionary Fiscal policy

A

Designed to reduce AD/AS (inflation running too high)

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10
Q

What does contractionary fiscal policy include

A
  • Increasing taxes
  • Cutting govt spending
  • Reducing borrowing (reducing debt burden
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11
Q

What does does expansionary fiscal policy incude

A
  • Cutting taxes
  • Raising Govt spending
  • Borrowing (creating debt)
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12
Q

What are automatic stabilisers

A
  • Changes in tax revenues and govt spending that come about automatically as the economy moves through the economic cycle
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13
Q

What are discretionary changes

A
  • Deliberate changes in taxation and government spending e.g capital spending
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14
Q

What is direct taxation

A
  • Tax levied directly on income, wealth and profit of individuals and firms
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15
Q

Examples of direct taxation

A
  • Income tax
  • National insurance
  • Inheritance tax
  • Capital gains tax
  • Corporation tax
  • Windfall taxes
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16
Q

How much is personal allowance (tax free income)

A
  • £12,570
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17
Q

What is the basic tax rate

A
  • 20%
  • £12,570- £50,270
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18
Q

What is the higher tax rate

A
  • 40%
  • £50,270- £125,140
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19
Q

What is the additional tax rate

A
  • 45%
  • Over £125,140
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20
Q

What is national insurance

A
  • Contributions to enable qualification for certain benefits e.g state pension, maternity allowance
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21
Q

What is inheritance tax

A
  • Tax on the estate of someone who’s died
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22
Q

What is rate of inheritance tax

A
  • 40% for over £325,000 (only part that is over this amount is taxed)
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23
Q

What is the rate of National insurance for employers

A
  • 15%
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24
Q

What is corporation tax

A
  • Tax paid by a corporation based on profits
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25
What is the rate of corporation tax
- 19% for profit below £50,000 - 25% for profit between £50,000 and £250,000 but marginal relief availabe - 25% over 250,000, no relief available
26
What is progressive tax
- Marginal rate of taxation rises as income rises - Eg UK income tax system
27
What is proportional (flat) tax
- Marginal rate of tax is consant - Earnings of £10,000 would pay 2000 in income tax, whereas earnings of £50,000 would pay £10,000 in income tax - EG Romania
28
What is regressive tax
- The rate of tax falls as income rises - Eg Vat
29
What is stealth tax
- A tax increase that occurs without changes to tax rates - Often through mechanisms such as freezing tax thresholds
30
What is indexation
- The adjustment of income thresholds, benefits or other financial benchmarks in line with inflation
31
What is fiscal drag
- The increase in tax revenues resulting from inflation or income growth when tax thresholds are not adjusted accordingly
32
What is the income affect
- As people earn extra income, they are willing to work extra hours
33
What is substitution effect
- Substitution of labour for leisure time - People willing to give up more leisure time as incomes increase
34
What is marginal tax rate
- Tax rate for any additional/fewer hour of income
35
What is the Laffer curve
- Illustrates relationship between tax rates and govt tax revenue - illustrates optimal tax rate
36
What is current spending
- Day to day running of govt - Wages, raw materials etc - Has to be renewed yearly
37
What is capital spending
- Spending on physical assets and infrastructure - More long term spending
38
What is transfer payments (Annually managed expenditure)
- Benefits and pensions - one way payment, no exchange of goods or services
39
What is expected public spending to be in 24/25
- £1.28 trillion
40
What is the importance of govt spending
- Provides socially efficient level of public goods and merit goods- overcomes market failure - Provides safety net system of welfare benefits - Provides necessary infrastructure - Used to manage level and growth of AD to meet objectives - Promotes equity
41
Impacts of govt spending on AD
- Multiplier effects
42
Impacts of govt spending on AS
- Create incentive to work by reforming welfare benefit systems - spending on capital projects - Encourage enterprise - Improve education and training
43
What does govt current spending influence
- AD
44
What does govt capital spending influence
- AD and LRAS
45
Economic importance of education spending
- Increases skills and productivity of workers (improves LRAS) - Improvement of human capital lowers structural unemployment - More innovation/competitiveness
46
Economic importance of healthcare spending
- Boosts active labour supply- rises LRAS - Increases productivity, also rising LRAS - Lessens risks of relative poverty
47
How much of a deficit is expected in 24/25
- £137.3 Billion
48
How much debt as % of National income expected in 24/25
- 95.9%
49
What is universal credit
- A benefit payment for people in or out of work - Replaces benefits and tax credits
50
What benefits and tax credits did universal credit replace
- Housing benefit - Child tax credit - Income support - Working tax credit - Income based jobseekers allowance - Income related employment and support allowance
51
Requirements to claim UC
- Live in UK - 18 and over - Under state pension age - £16,000 or less in money, savings and investment
52
What is a cyclical deficit
- Occurs as a result of stage of the economic cycle
53
What is structural deficit
- Occurs even when economy is growing - Bigger problem as govt is financing day to day spending with debt
54
What are the Chancellor's stability rule
- The current budget should be on course to be in balance or surplus by 29/30
55
What is the chancellors Investment rule
- Net financial debt should fall as a share of the economy by 29/30
56
What is the chancellors welfare cap rule
- Some types of welfare spending must remain below a pre-specified level
57
What happens to the deficit when the economy is strong
- Lower - because tax revenues increase and welfare costs are lower
58
What happens during a cyclical deficit
- Tax revenues lower - Govt spending higher- welfare payments
59
Causes of current UK budget deficit
- Spending on recent support schemes (energy support, furlough) - Rising interest rates- interest payments on govt debt - Weaker economy
60
Crucial distinction between deficit and debt
- Deficits must be financed through borrowing - Borrowing creates debt, which has to be serviced
61
How does public spending as a share of National income compare with other industrial countries
- Slightly above average - More than US or Japan - Less than Italy or France
62
Arguments for reducing the deficit and therefore borrowing
- High debt threatens confidence, stability and recovery - Reduction of interest payments - credibility in financial markets - Avoid higher future taxes - Crowding out affect- govt spending in economy discourages private sector investment
63
Arguments for running a deficit and therefore increasing borrowing
- Low interest rates mean crucial infrastructure projects can happen - Need to boost growth - Sensible policies are self financing as they generate tax revenue - Improves supply side of economy - External shocks
64
What does running a deficit being good or bad depend on
- Type of deficit ( structural or cyclical) - Objectives - Why the deficit exists - Current context
65
Common misconception of reducing debt as % of GDP
- Doesn't reduce debt, just reduces rate at which debt rises at
66
What objectives does reducing the deficit depend on/impact
- Employment - Equality - Inflation - Growth - BOP
67
What objectives does increasing the budget deficit depend on/affect
- Employment - Equality - Inflation - Growth - BOP
68

Freakonomics (macro) (7 decks)

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