Week 9 Flashcards
(13 cards)
Pigouvian taxes
is a tax on any market activity that generates negative externalities (costs not included in the market price). The tax is intended to correct an inefficient market outcome, and does so by being set equal to the social cost of the negative externalities. In the presence of negative externalities, the social cost of a market activity is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to over-consumption of the product.
Ramsey Taxes
need to raise revenue to finance desired government expenditure and want to raise taxes in a way that distorts the economy the least.
Which goods to tax? Tax items lightly where peoples decision s are very responsive to tax rates. Tax heavily when they do not respond (alcohol, petrol and cigarettes).
Redistribution and taxes
marginal utility of an extra dollar higher for the poor.
‘VOODOO’ economics
an economic policy perceived as being unrealistic and ill-advised, in particular a policy of maintaining or increasing levels of public spending while reducing taxation.
The Laffer curve
The primary fiscal deficit is the difference between….
spending and tax revenues (government surplus the opposite)
The (total) fiscal deficit
Deficit meaning
The meaning of “deficit” differs from that of “debt”, which is an accumulation of yearly deficits. Deficits occur when a government’s expenditures exceed the revenue that it generates. The deficit can be measured with or without including the interest payments on the debt as expenditures
Why do fiscal deficit change from year to year?
Sustainable debt
the level of debt which allows a debtor country to meet its current and future debt service obligations in full, without recourse to further debtrelief or rescheduling, avoiding accumulation of arrears, while allowing an acceptable level of economic growth.
Fiscal policy as stabilization tool
Why might fiscal multiplier not work?
Ricardian Equivalence
an economic theory that suggests that when a government tries to stimulate an economy by increasing debt-financed government spending, demand remains unchanged. This is due to the fact that the public saves its excess money to pay for expected future tax increases that will be used to pay off the debt. This theory was developed by David Ricardo in the 19th century but was revised by Harvard professor Robert Barro into a more elaborate version of the same concept.
