Seminar 4

• The general government sector is formed by:

  • The central government
  • State/regional governments
  • Local governments
• When we say Government, we refer to the general government sector.
• The general government sector includes social security funds, whose principal activity is to provide social benefits (payments related to pensions and sickness).
• Government finance is determined by the economic activities of government, including:

  • Total revenue and total expenditure
  • Trades of assets and liabilities
  • Stocks of assets and liabilities
• An example of assets and liabilities

  The issuance of bonds or fluctuations in the market value of government bonds
• Government finance statistics look like company accounts: They show a profit and loss account summarising revenue and expenditure during a year or quarter and also a balance sheet at the start and end of the year showing the assets and liabilities of the government.
• Revenue can be disaggregated by different types. For example:

  • Income taxes of households
  • Wealth or inheritance taxes
  • Taxes on business profits
  • Value added taxes (VAT)
  • Taxes on special products such as cigarettes
• Government revenue from taxes and social contributions is often displayed as comparable to the size of the economy. (relative to gross domestic product (GDP)
• Governments also have revenue from dividends of public corporations, from interest income on their loan assets or from fines and penalties.
• We can analyse expenditure in twofold:

  1. Looking at the type of expenditure
  2. Looking at the purpose of the expenditure, based on the taxonomy of the functions of government
• If revenue is higher than expenditure, it is known as surplus.
• If expenditure is higher than revenue, it is called deficit
• The government balance is calculated by the difference between income and expenditure of government.
• If there exists a surplus, the government has money to lend, while if there exists a deficit it needs to borrow to cover all of its expenditure. The surplus/deficit of the government sector is referred to as net lending/borrowing in national accounts.
• Based on the Maastricht Treaty, countries wanting to join euro area are compelled to accomplish the following criterium regarding the Government deficit, that is, it should not be above 3% of GDP.
• Convergence occurs when the income gap between the richest and poorest economies narrows.
• All EU members are different:

  • Each country will have a different level of wealth
  • Economic growth will be different as well, i.e. each country grows at a different rate

  Thanks to this, a process of convergence in terms of per capita income can emerge.
• Countries that start with a low GDP per capita will have higher growth in the period analysed.
• Countries that start with a high GPD per capita will have lower growth over the period analysed.
• In this way, we are saying that poor countries have grown more than rich countries, so a process of convergence is taking place.
• The European Green Deal

  2050: the EU aims to become the first climate-neutral power → the 27 members committed to meeting the EU's climate targets
• With are the most relevant areas related to the Green Deal?

  • Reducing our climate impact
  • Protecting our planet and health
  • Enabling a green and just transition