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LC Econ Govt-Fiscal

LC Economics-The Government and the Economy- Fiscal Policy

Merit Goods These are goods which society deems should be available to everybody at some minimum quantity, regardless of their income e.g. food and shelter.
Public Goods These are goods provided by the government for the benefit of everybody e.g. Police, street lighting, footpaths etc.
Automatic Stabilisers When change in government expenditure and tax revenue occurs without any change in government policy as national income changes. As national income increases tax revenue automatically increases.
Progressive Tax Is a tax that takes a higher percentage of income from a person as their income increases. This form of income takes into account the persons income. (PAYE)
Explain the relationship between a govt budget deficit and national debt A government budget deficit exists when total government expenditure > govt revenue. A budget deficit is financed by increased government borrowing.
Imposition of Taxes Refers to the people or companies on whom the tax is actually levied i.e. imposed. They have to pay tax directly to the government e.g. excise duty on petrol is levied on the petrol companies.
Effective Incidence of Tax Refers to the people who have to bear the burden of the tax e.g. a tax on petrol is levied on the petrol companies who pass this onto motorists in the form of increased prices.
Tax Avoidance Is the practice of using the tax code to the best possible advantage in order to reduce your tax liability to the minimum. This is legal.
Tax Evasion This is the non payment of tax due to either making no tax returns or making false tax returns. This is illegal.
Direct Taxes Are taxes on all forms of income e.g. PAYE, capital gains tax.
Indirect Taxes Are taxes on transactions e.g. VAT, customs duties, stamp duties.
Black Economy Is all the economic activity that goes unrecorded in a year.
Capital Acquisition Tax Is a tax on gifts received or an inheritance above a certain value.
Ad Valorem Tax Is an indirect tax which takes a given percentage of the price of a good e.g. VAT
Capital Gains Tax Is a tax on the profits from the sales of assets
Lump Sum Tax Is a fixed sum of tax levied on a firm irrespective of its level of income or profit.
Specific Tax Is levied at a given absolute amount on each unit of a good sold e.g. 10c on one litre of petrol.
Stealth Taxes Are charges made for the use of services provided by the government or by a local authority e.g. bin charges.
Exchequer Balance Is the difference between total current and capital expenditure and total income of the central government.
General Government Balance Is the total income minus expenditure of all arms of government i.e. central government, local authorities, vocational education committees and non commercial state sponsored bodies.
National Debt Is the total outstanding amount of money borrowed by the central government and not repaid to date.
Commercial Rates Are a tax on property which are used for business purposes.
Balanced Budget Is one where planned current income is equal to planned current expenditure.
Surplus Current Budget Is one where planned current income is greater than planned current expenditure.
Deficit Current Budget Is one where planned current income is less than planned current expenditure. More is put into the economy than it taken out.
Neutral Budget Is one which is neither inflationary nor deflationary.
Exchequer Borrowing Requirement (EBR) Is the amount of money which a government borrows to finance a current budget deficit and capital projects.
Public Sector Borrowing Requirement (PSBR) Is the EBR plus borrowing for the non-commercial state sponsored bodies and local authorities.
Deadweight Debt Is borrowing for projects which will never become self financing e.g. the e-voting machines.
Rolled-Over Debt Is substituting an old debt with a new one e.g. to pay off the interest of the national debt, governments often have to borrow again to pay off this part of servicing the national debt.
Exchange Rate Policy Refers to devaluing or revaluing our currency in terms of other currencies.
Direct Intervention The setting up of Semi-State bodies to provide goods or services on the open market and the passing of legislation.
Deregulation Is the changing of laws and practices which are detrimental to competition.
Prices and Incomes Policy Is the way the government implements price control regulations and freezes or limits wage increases.
Economic Planning Includes consultations with the social partners to achieve realistic economic targets over an agreed period of time e.g. National Development Plan.
Revenue Buoyancy actual tax revenue collected during the year that is greater than what had been planned for.
Fiscal Drag in a period of revenue buoyancy, when Gov revenue is greater than anticipated, Gov expenditure may remain at the level originally planned in the budget. Therefore Gov rev is outpacing exp, more money coming out of the economy than is put back in.
General Government Deficit Combined deficit (or surplus) of central and local government.
General Government deficit as a proportion of GDP Combined deficit (or surplus) of central and local government as a proportion of GDP
Progressive Taxation takes proportionately more tax as persons income increases. PAYE, USC
Regressive Taxation takes progressively less as income increases. Taxes which take no account of a persons ability to pay
Direct Tax taxes on income and wealth. PAYE, CGT, CAT, DIRT.
Indirect Tax taxes on transactions/spending. VAT, Customs Duty, Stamp Duty
Reason for taxation Encourages enterprise, investment, employment and promotion☻tax system more regressive☻evasion more difficult ☻revenue collection less certain ☻can be inflationary ☻increase in shadow economy
Outline the main functions of taxation. Finance government activities (wages/pub wages)☻economic objectives(decrease inflation/BofP)☻redistribution of national wealth (social welfare)☻automatic stabiliser☻social objectives(environment/smoking)☻Promote enterprise
Advantages of indirect taxation. Low collection cost (economic) ☻Hard to avoid ☻does not disincentivise work
The Irish Govt introduced the Household charge (Property tax) per household in its 2012 budget. State two advantages of this charge/tax for the Exchequer. Is it Progressive or Regressive? Increase Government Revenue (↑ revenue finances more projects) ☻Government Planning ( Charge is a flat rate / Certain and helps planning) ☻☻It is a Regressive tax which means it takes proportionally more tax from the poor then the rich.
Discuss four possible economic consequences of the Governments Current Budget Deficit for the Irish economy. Additional taxation ☻ Cuts in public expenditure ☻Reduction in the provision of state services ☻ Reduction in aggregate demand/job losses ☻Troika interventsion ☻Public sector pay decreases ☻loss of confidence (emigration)
Explain how a government budget could be used to reduce income inequality in an economy. Tax changes ☻ Welfare benefits could be increased/maintained ☻Increase minimum wage rate ☻Target universal entitlements (means test Child Benefit) ☻Wealth Tax
What is a Wealth tax? A tax that targets earners over a specific amount. Example: Introduced in France where incomes were over €1m are taxed at 75%
Created by: MrFromholz



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