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Contractionary fiscal policy, on the other hand, is a measure to increase tax rates and decrease government spending. It occurs when government deficit spending is lower than usual. This has the potential to slow economic growth if inflation, which was caused by a significant increase in aggregate demand and the supply of money, is excessive.
The issue of how taxes affect income distribution is closely related to tax incidence, which examines the distribution of tax burdens after market adjustments are taken into account. Public finance research also analyzes effects of the various types of taxes and types of borrowing as well as administrative concerns, such as tax enforcement.
Government spending can be a useful economic policy tool for governments. Fiscal policy can be defined as the use of government spending and/or taxation as a mechanism to influence an economy. [5] [6] There are two types of fiscal policy: expansionary fiscal policy, and contractionary fiscal policy. Expansionary fiscal policy is an increase in ...
Tax policy: The taxes used to collect government income. Government spending on just about any area of government; Monetary policy controls the value of currency by lowering the supply of money to control inflation and raising it to stimulate economic growth. It is concerned with the amount of money in circulation and, consequently, interest ...
Within market economies, taxation is considered the most viable option to operate the government (instead of widespread state ownership of the means of production), as taxation enables the government to generate revenue without heavily interfering with the market and private businesses; taxation preserves the efficiency and productivity of the ...
The argument that the choice of taxes or borrowing to finance government spending must be equivalent in that taxpayers observe borrowing and save in anticipation of taxes to repay the borrowing is known as Ricardian Equivalence, and is sometimes cited as a rationale for believing that fiscal stimulus policy will be made futile by the reactions ...
The estate tax was reinstated in 2011 with a further increased cap of $5 million for individuals and $10 million for couples filing jointly and a reduced rate of 35%. The "step-up basis" of estate tax law allows a recipient of an estate or portion of an estate to have a tax basis in the property equal to the market value of the property.
This is a tax with a large potential but it is one which currently only brings a small portion of money to the government's budget in many developing countries. A capital-gains and capital-transfers taxes implementations are another ways of improving the state of the tax systems in developing countries.