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Fiscal Policy

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Balanced budget
A budget in which taxation equals government spending.
The budget
The statement by the Chancellor of the Exchequer which outlines his or her fiscal policy for the coming financial year. It normally occurs in March.
The Autumn statement
The mid-year review of fiscal policy which the Chancellor makes in October to provide an update on fiscal policy since the March budget and make any necessary adjustments.
Structural balance
When budget deficits during recessionary periods are compensated for with fiscal surpluses during boom periods over the course of the economic cycle.
Structural deficit
When budget deficits exceed budget surpluses over the course of the economic cycles.
Discretionary fiscal policy
When the government adjusts marginal rates of taxation in order to achieve fiscal goals. E.g. cutting the top rate of tax from 50p to 45p in the pound for earnings over £150,000 per annum.
Progressive taxation
Taxation that redistributes tax revenues from rich to poor e.g. income tax in the UK.
Regressive taxation
Taxation that takes more from the poor than from the rich as a proportion of their income.
Proportionate taxation
Taxation that takes the same proportion of income from rich and poor income brackets. Sometimes known as a flat tax.
Automatic stabilsers
The effects of having a progressive system of taxation and benefits in place. In boom times people will move into higher tax brackets. In recessionary times they may fall below higher tax thresholds a
Personal Allowance
The amount you can earn tax-free.
Fiscal deficit
When government spending exceeds taxation.
Fiscal surplus
When taxation is greater than government spending.
Expansionary fiscal policy
The use of government spending and tax cuts to increase aggregate demand.
Contractionary fiscal policy
The use of government spending cuts and tax increases to reduce aggregate demand.
The government 'IOUs' which the government sells to raise money to finance budget deficits.
Public Sector Borrowing Requirement
The figure that the government needs to raise in bonds to cover a budget deficit.
Tax breaks
Allowance to firms to retain corporation tax if spend on economic 'goods' such as R & D or training.
The Laffer curve
A diagram which shows an apparent reduction in tax revenues if marginal tax rates rise above a certain level.
The term that has come to refer to the contractionary fiscal policy undertaken by the coalition government in a bid to reduce national debt and yearly budget deficits.
Credit rating
The rating given to governments by agencies such as Moody's and Standard and Poors which helps determine the interest rate at which financial markets will lend to governments such as the UK.
The Office for Budget Reponsibility
An organisation set up by the coalition government to give independent forecasts of growth, likely tax revenues and budget deficits etc.
Crowding out
When government borrowing from financial markets leads to less funds being available for private sector investment.
Government Failure
Policy failures, and imperfect information resulting in public spending resulting in sub-optimal outcomes.
Current expenditure
Day-to-day government expenditure e.g. on teachers' wages or drugs used in the NHS
Capital expenditure
Government spending on large-scale investment projects e.g. hospital building or high speed rail links.
Transfer payments
Payments paid to individuals without goods and services provided in return e.g. unemployment benefits.
National Debt
The accumulation of all government borrowing resulting form budget deficits over several years.
Debt interest
The interest the government must pay on its borrowing.