fiscal policy

government revenue

the amount of money the government receives

government spending

the total amount of money spent by the government in a given time period

types of government spending

benefits, education, healthcare, defence, paying off debt

sources of government revenue

direct tax, indirect tax

direct tax

a tax on income and wealth

indirect tax

a tax on spending imposed on producers which may be passed onto consumers by price increase

examples of direct tax

income tax, national insurance ,inheritance tax

examples of indirect tax

Value added Tax , import tax , excise duties

examples of local added taxes

council tax, business rates

balanced budget

revenue = government spending

budget surplus

revenue > government spending

budget deficit

revenue < government spending

how can fiscal policy be used to achieve a rise in economic growth?

budget deficit, reduced tax, Increased spending

how can fiscal policy be used to achieve lower unemployment ?

budget deficit, reduced tax, Increased spending

how can fiscal policy be used to achieve price stability or lower inflation ?

budget surplus, increased tax, reduced spending

how can fiscal policy be used to improve balance of payments ?

budget surplus, increased tax, reduced spending

how can fiscal policy be used to achieve fair distribution of income ?

budget deficit, increased tax, increased spending

fiscal policy

a policy that aims to control the economy through the use of government revenue and spending

how can a rise in income tax and NIC affect markets and the economy

fall in disposable income

markets- workers may stop working due to fall in disposable income, fall in demand for non-essential products

economy - lower economic growth , lower inflation

how can a fall in corporation tax affect markets and the economy

market-

firms have more profits to reinvest into business - grows business

economy-

economic growth and more employment

how can a rise in excise duties on goods with negative externalities affect markets and the economy

markets-

fall in demand - the extent dependent of the price elasticity of demand,

economy -

improvements to the environment, healthcare and less imports

how can a rise in VAT affect markets and the economy

markets-

fall in demand

economy-

if produced in UK, employment falls. if produced abroad, imports may fall

effect of government spending in the labour market

increased employment in certain jobs

effect of government spending in the construction market

mass employment, new infrastructure

effect of government spending in the private sector

boosts demand for goods and services, helping them grow

effect of government spending in specific markets

increase supply for certain products, decrease price and increase demand

costs of fiscal policy

if consumers save more than they spend they may not get the projected economic growth,

if consumers and firms spend money on imports their balance of payment will get worse ,

demand-pull inflation

opportunity cost of gov spending

benefits of fiscal policy

economic growth, reduced unemployment, fiscal policy acts more directly and quickly on the economy

progressive tax

tax that takes a greater percentage the higher your income

methods of redistributing income

progressive tax, benefits, minimum and living wage, decrease in indirect tax

how do benefits redistribute wealth and income

ensures everyone has enough to meet basic needs, provides incomes to unemploymed, ill and retired - funded by taxes

consequences of benefits

if they are seen as too generous, people may be discourages from working because reward for working is less than benefits

how can national minimum and living wage redistribute wealth and income

ensures that low skilled workers earn a decent wage and can meet their needs

consequences of increasing minimum wage

decrease in unemployment as firms see it as too expensive

how does decreasing VAT redistribute income

lower costs for essential goods and services, more disposable income

consequences of VAT

decreased government revenue for redistribution, demand-pull inflation

how do progressive taxes help redistribute income

richer people contribute more tax and the increased government revenue is invested into funding public services and benefits

consequences of progressive taxes

• could discourage people from working extra hours or seeking promotions as the after tax reward isn’t enough

• wealthy could move out of the UK, or evade tax