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Fiscal policy can be distinguished from monetary policy, in that fiscal policy deals with taxation and government spending and is often administered by a government department; while monetary policy deals with the money supply, interest rates and is often administered by a country's central bank. Both fiscal and monetary policies influence a ...
In fiscal year 2005, the deficit began to shrink due to a sharp increase in tax revenue. By 2007, the deficit was reduced to $161 billion; less than half of what it was in 2004 and the budget appeared well on its way to balance once again. Fiscal policy is the application of taxation and government spending to influence economic performance.
Throughout that year a number of fiscal measures were introduced including a £145 tax cut for basic rate (below £34,800 pa earnings) tax payers, a temporary 2.5% cut in Value Added Tax (Sales Tax), £3 billion worth of investment spending brought forward from 2010 and a variety of other measures such as a £20 billion Small Enterprise Loan ...
The government forms a budget for the new fiscal year by taking the budget from the previous fiscal year as a base and makes only small changes to it. Top-down approach: The central financial authority (e.g. the Ministry of finance) sets boundaries to the budget and the government completes it. This approach originated in the 1990s as an ...
[29] [30] This high degree of fiscal balancing is a result of most states in the U.S. having balanced budget requirements. [31] A balanced budget requirement is a law that requires a government to balance its budget annually, such that government spending equals government revenue . [ 32 ]
As popularized by supply-side economist Arthur Laffer, the curve is typically represented as a graph that starts at 0% tax with zero revenue, rises to a maximum rate of revenue at an intermediate rate of taxation, and then falls again to zero revenue at a 100% tax rate. However, the shape of the curve is uncertain and disputed among economists.
This spending is an optional part of fiscal policy, in contrast to social programs for which funding is mandatory and determined by the number of eligible recipients. [2] Some examples of areas funded by discretionary spending are national defense, foreign aid, education and transportation.
The concept is often encountered in the context of a government's approach to spending and taxation. A 'procyclical fiscal policy' can be summarised simply as governments choosing to increase government spending and reduce taxes during an economic expansion, but reduce spending and increase taxes during a recession.
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