Includes any spending that adds to the capital stock of the UK, such as building new schools.
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Current Expenditure
Recurring costs that relate to the day-to-day expenditure on goods and services, such as wages.
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Transfer Payments
Made by the state to the individual without there being any exchange of goods/services, such as benefits and pensions.
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Factors Influencing Government Spending
Changing incomes, Changing age distributions, Changing health and education expectations, The Financial Crisis.
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Financial Crowding Out
Government borrowing can increase interest rates or tax revenue can be used to gain money to spend, which therefore discourages investment and spending.
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Resource Crowding Out
If the private sector lend to the government then they have less money to invest elsewhere.
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Impact of Large Public Expenditure
Increase living standards, level of tax and income equality. Decrease productivity and growth.
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Progressive Tax
Where the proportion of income paid in tax rises as income of the taxpayer rises.
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Regressive Tax
Where the proportion of income paid in tax falls as the income of the taxpayer rises.
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Proportional Tax
Where the proportion (%) paid in tax remains the same while the income of the taxpayer changes, e.g. some inheritance taxes.
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Laffer Curve
A theory that suggests if tax is set to high, government failure will occur as consumers will smuggle the taxed goods in from other countries. Or not work as hard and pay less tax on income.
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Benefits of Flat Taxes
Makes taxes less complex, which in turn encourages business opportunities.
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Drawbacks of Flat Taxes
Increase income inequality, Decrease tax revenue, Wouldn't really make tax much simpler.
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Examples of Progressive Taxes
Income, National Insurance, Corporation, Inheritance, Capital Gains, Business Rates.
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Examples of Regressive Taxes
Excise Duties, VAT, Council Tax.
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Which type of tax would improve income distribution?
Progressive
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Impact of Low Taxes
Higher employment, consumption, supply and investment; More imports and exports; More FDI.
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Impact of High Taxes
Higher unemployment and government spending; Lower AD, consumption and imports and exports.
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What do Governments do during a recession?
Decreases tax and increases spending to increase growth.
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What do Governments do during a boom?
Increases tax and decreases spending to slow down the economy.
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Discretionary Fiscal Policy
Non-mandatory changes in tax and spending in response to economic activity such as recessions.
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Automatic Stabilisers
Economic policies designed to offset fluctuations in economic activity without any intervention by the government.
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Fiscal Debt
The difference between total revenue and total expenditure of the government.
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National Debt
Total quantity of money borrowed by the government through the issue of securities.
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Cyclical Fiscal Deficit
Occurs during a downturn as tax revenues will be falling, whilst expenditure should be increasing. This deficit should disappear when the economy returns back to normal.
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Structural Fiscal Deficit
Occurs when the economy is fully employed but planned expenditure is higher than planned income.
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How do countries deal with structural deficits?
Austerity, Public Sector Borrowing.
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Conventional Gilts
A bond issued by the UK government which pays the holder a fixed cash payment every six months until maturity, when they receive the rest. They have an interest rate reflecting the current interest rate.
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Problems of National Debt
Interest payments, Higher taxes and lower spending, Crowding out, Potential of negative impact on exchange rate, Markets become more reluctant to lend to the UK.
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Direct Controls
Forms of control which work outside the market system, including maximum and minimum price controls, and wage rates.
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How do you reduce fiscal deficits and national debts?
An event that produces a significant change within an economy, despite occurring outside of it.
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World Demand Shocks
Associated with a rise in spending and confidence abroad.
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World Supply Shocks
Affect the global price and supply of goods and services.
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World Financial Shocks
Occur in the global financial system.
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Examples of Shock Absorbers
Quantitative Easing, Fiscal Policy, Flexible Labour Markets, Flexible Product Markets.
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Other cards in this set
Card 2
Front
Recurring costs that relate to the day-to-day expenditure on goods and services, such as wages.
Back
Current Expenditure
Card 3
Front
Made by the state to the individual without there being any exchange of goods/services, such as benefits and pensions.
Back
Card 4
Front
Changing incomes, Changing age distributions, Changing health and education expectations, The Financial Crisis.
Back
Card 5
Front
Government borrowing can increase interest rates or tax revenue can be used to gain money to spend, which therefore discourages investment and spending.
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