fiscal

• what is fiscal policy

  the use of government spending and taxation to influence the level of economic activity
• what does fiscal policy always have an effect on

  government budget position - creates a dilemma between growth and the deficit
• can fiscal policy be supply and demand side policy


  yes as changes to taxes can later the supply of workers for example
• in what ways can fiscal policy influence both macro and micro

  -changes to personal taxes

  -changes to benefit levels

  -changes in supplier side taxes

  -changes in subsidy levels
• how can fiscal policy affect AS

  -infrastructure spending can boost LRAS

  -falls in national insurance can increase the supply for labour

  -lowering cooperation tax can increase the profit incentive for firms
• what is meant by the pattern of economic activity 


  the pattern of economic activity refers to what people spend on in the economy not how much they spend
• how can fiscal policy influence the pattern of economic activity

  -taxes on sugary drinks can move people to healthier alternatives

  -subsidies on solar panels can mean more consumers purchase them
• what is industrial policy

  it is both a fiscal and supply side policy intended to impact one industry
• what does industrial policy often look like

  an industry with promise for economic growth and jobs is given subsidies to increase supply and encourage investment by firms e.g. green technology
• define public spending

  government spending
• what are the top 6 public expenses

  -social security

  -health

  -education

  -debt interest

  -defence

  -transport
• what are the top 6 sources of tax revenue

  -income tax

  -national insurance

  -VAT

  -cooperation tax

  -excise duty

  -capital taxes
• what are the 6 reasons for government spending

  -to provide public services

  -correct market failure -provision of public services

  -to redistribute income and erase poverty

  -to finance national debt

  -to boost the economy during times of recession

  -to improve the supply side and international competitiveness
• what are the 5 reasons for taxation

  -raise money for public services

  -redistribute income

  -correct market failure where social costs are ignored

  -reduce AD if economic growth is unsustainable

  -finance the national debt
• define a direct tax

  taxes on incomes and profits
• define an indirect tax

  taxes on spending
• what are the 3 types of tax system

  -regressive

  -progressive

  -proportional
• what is the progressive tax system

  where a person pays a larger percentage of their income the more they earn
• what is a proportional tax system 


  where everybody pays the same percentage of their income
• what is a regressive tax system 


  the more a person earns the smaller percentage of their income they pay
• how is VAT a regressive tax system 


  as no matter your income you pay the same value which is a lower percentage for larger incomes
• hat are the 6 principles of taxation

  -equitable - must look at whole tax burden

  -convenient to pay

  -economic to collect

  -certain - easy to understand

  -no unintended side affects

  -difficult to avoid/evade
• what is the difference between tax evasion and avoidance

  avoidance = legally reducing your personal tax burden

  evasion= = illegally not paying taxes
• what does changes in income tax affect

  demand and supply
• what are the 3 ways of altering income tax

  -change the tax bands

  -alter the basic rate

  -alter the higher rates
• who does increasing personal allowance affect

  poorer people as it makes a greater percentage of their income tax free increasing their incentive to supply labour
• who can lowering tax percentages increase tax revenue 


  lowering higher bands can increase revenue as tax avoidance falls
• define the concept of fiscal drag

  when the government doesn't increase the tax bands with inflation
• how does fiscal drag work

  peoples pay increases so a smaller percentage is tax free - also some people will move into higher tax bands
• what effect does lowering employees national insurance have

  the same as lowering income tax but this only benefits workers not all people with income therefore having a bigger supply side effect
• why does employers national insurance exist

  to make businesses who avoid cooperation tax pay some form of tax within the UK
• what affect does reducing coorperation tax have

  boosting AD

  boosting LRAS

  increase FDI

  keeps firms in the UK
• what do excise duties do 


  correct negative externalities
• what is the rate of VAT

  20%