MACRO DEFINITIONS: fiscal policy and supply side policies

automatic stabilisers

parts of fiscal policy that automatically react to changes of the economic cycle

balanced budget

achieved when government expenditure equals government revenue

budget deficit

achieved when government expenditure exceeds government revenue

budget surplus

achieved when government revenue exceeds government expenditure

contractionary fiscal policy

fiscal policy implemented to decrease aggregate demand

corruption

government failure through abuse of power

crowding out

when an increase in government spending displaces private sector spending, with little to no increase in aggregate demand

cyclical budget deficit

part of the budget that tends to rise in economic slumps and fall in economic booms

debt sustainability

the ability to manage debt so that it doesn't impede growth or stability

deficit financing

borrowing to finance a budget deficit

deindustrialisation

decline in the manufacturing industry of an economy

demand-side policy

government policies that aim to alter aggregate demand in the economy

deregulation

removing regulation

direct tax

a tax on income and wealth

discretionary fiscal policy

altering taxation and government spending as a response to an economic cycle stimulus (e.g. a recession)

dumping

when a producer exports products at a price lower than the prices charged in their home country, or lower than the costs of production

expansionary fiscal policy

fiscal policy implemented to increase aggregate demand

fiscal austerity

when the government enacts policies to reduce the size of a fiscal deficit

fiscal policy

use of government spending and taxation to achieve macroeconomic objectives

fiscal stimulus

changing taxation and government spending to boost demand and output

human capital flight (brain drain)

when economies experience net outward migration of skilled/young workers

hypothecation

when tax revenue is saved to be used later for a specific purpose

indirect tax

tax on expenditure

interventionist policies

occur when the government intervenes in, and sometimes replaces, free markets

Laffer curve

curve illustrating the relationship between tax revenues and tax levels

marketisation

shifting the provision of goods or services from the non-market sector to the market sector

national debt

unpaid government debt

natural rate of unemployment (NRU)

unemployment rate when the aggregate labour market is in equilibrium

principle of taxation (canon of taxation)

criterion used to judge whether a tax is good or bad

privitisation

shifting the ownership of state-owned assets to the private sector

progressive taxation

taxes where a larger proportion of income is paid as income rises

proportional taxation

taxes where the same proportion of income is paid as income rises

reflationary policies

policies to increase aggregate demand, with the intent to increase real output and employment

regressive taxation

taxes where a smaller proportion of income is paid as income rises

reindustrialise

growth in the manufacturing industry of an economy

structural budget deficit

part of the budget that is unaffected by the economic cycle, and is more dependent on the decisions of the government

supply-side

relates to changes in potential output of the economy which is affected by the factors of production

supply-side improvements

reforms undertaken by the private sector to enable firms to become more productively efficient

supply-side policies

use of interventionist policies to encourage efficient markets, thus achieving macroeconomic objectives

tax threshold

the level above which income tax must be paid