Fiscal policy

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Fiscal Policy
EdExcel AS Economics 2.6.2

Fiscal Policy Economics – Some Key Terms
Bond Yield The rate of interest paid on government debt
Budget (Fiscal) Deficit
T...

What is Fiscal Policy?
• Fiscal policy involves the use of government spending, direct
and indirect taxation and governmen...

Total UK Government Spending and Tax Revenue
Source: International Monetary Fund, data from 2015 onwards is a forecast
500...

The Public and the Private Sector of the Economy
Public sector businesses are owned and operated by the
government, whilst...

Some Key Roles for Fiscal Policy
Financing
government
spending
Changing final
income and
wealth
Providing a
welfare state
...

Breakdown of UK Government Spending in 2015-16
Welfare protection is the largest single element of government spending,
wi...

Government Spending
Welfare Spending
Transfer Payments
Public Services
Recurring spending
State Investment
Investment Proj...

Government Current and Capital Spending
Current spending – on
providing public services
Capital spending – new public
infr...

Economic Importance of Government Spending
Is a Key
Component
of Aggregate
Demand
Has a big
Regional
Economic
Impact
Provi...

Economic Importance of Education & Health Spending
Education and health are regarded by economists as merit goods.
An incr...

Median Age of the UK Population
34.9 35.1 35.5 35 34.2 33.9 34.4 35.3 35.8 36.5
37.6
38.7
39.8 40.5
0
5
10
15
20
25
30
35
...

How Government Spending can affect Incomes
Welfare state transfers
• Universal child benefits / unemployment benefit
• Pub...

Welfare Spending by the UK Government
£ billion per year 2014-15 2015-16 2016-17
Welfare capped spending
Department of Wor...

Sources of UK Government Tax Revenues in 2015-16
Income tax and VAT are the two biggest sources of government revenues

Direct and Indirect Taxation
• Direct taxation is levied on income, wealth and profit
• Direct taxes include income tax, i...

UK Government Tax Revenues by Size
2013/14 2014/15
Income tax 163.7 170.2
National insurance contributions 110.3 114.8
Val...

Tax Revenues from UK Air Passenger Duty
Text goes here
948
806 816 791
864 905 971
1,994
1,862 1,856
2,155
2,607
2,791
3,0...

Progressive, Proportional and Regressive Taxes
• With a progressive tax, the marginal rate of tax rises
as income rises. I...

Progressive, Regression and Proportional Taxation
Percentage of gross income taken up by different taxes in the UK in 2013...

Original and Final Income – Redistribution in the UK
The UK tax and welfare system is mildly progressive because it leads ...

The Effects of Taxes and Benefits on Rich and Poor
Benefits in kind include the estimated value to households of consuming...

Taxation and Aggregate Demand
Changes in tax rates and tax allowances can have direct and
indirect effects on the level of...

Lower Taxes and Components of Demand
Cut in personal
income tax rates
Boost to disposable
income
Adds to consumer
demand
C...

Effect of a Lower Corporation Tax on Businesses
Government cuts the
rate of corporation
tax
Businesses get to
keep a large...

Impact of a rise in indirect taxes on the UK Economy
All other things being equal, an increase in indirect taxes by the
go...

Taxation and Aggregate Supply
Changes in tax rates and tax allowances can have a direct and
indirect effect on both short-...

How Could Tax Cuts Stimulate Economic Recovery?
Low confidence – tax
cuts likely to be saved
rather than spent
Businesses ...

Tax Competition between Countries
Changes in business taxation in particular are now regarded as an
important form of supp...

Evaluating the Arguments for a Low Tax Economy
Lower
Taxes
Stimulates work incentives and
productivity
Helps to create mor...

Evaluating the Arguments for a Low Tax Economy
Higher
Taxes
Taxation is a key instrument for changing the final
distributi...

Actual & Forecast Government Budget Balance
Source: Office for Budgetary Responsibility, July 2015
The budget deficit is t...

The UK Budget Balance and National Debt
Source: OBR, July 2015
Public Sector
Borrowing
% of GDP
Public Sector Net Debt
% o...

Government Borrowing and Bond Interest Rates
When a government borrows it issues debt in the form of bonds. The
yield on a...

Economic Justifications for Budget Deficits
Since 1970, the government has had a surplus in only six years – it is
normal ...

Countries with Highest Government Debt in 2015
246.14%
172.73%
133.76%
132.82%
131.82%
129.24%
126.35%
121.08%
115.89%
107...

Countries with the Lowest National Debt in 2015
1.82%
3.28%
6.37%
8.32%
8.56%
8.87%
9.46%
10.13%
11.48%
11.88%
12.73%
13.6...

Is a High Level of Public Debt Bad for the Economy?
Public debt is the total stock of debt issued by a government that has...

Government Debt for a selection of EU Countries
2006 2008 2010 2012 2015
France
% of
GDP
81.9 87.7 103.5 113.4 127.5
Germa...

• The UK government has a fiscal deficit-reduction policy with the emphasis on
cutting government spending in some areas i...

In the July 2015 Budget, the
Chancellor George Osborne
announced a new fiscal rule.
The government’s fiscal rules now
incl...

Fiscal Policy
EdExcel AS Economics 2.6.2

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