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Fiscal Policy


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Fiscal policy
The varying of taxation, government spending and government borrowing to achieve government objectives.
Budget deficit
Also known as a fiscal deficit. Occurs when the government wishes to spend more than it is taking in in taxes.
Budget surplus.
When revenues from taxation exceed planned government spending.
Contractionary fiscal policy.
When government attempts to reduce spending power in the economy, by increasing taxation and reducing government spending, normally to combat inflation.
Expansionary fiscal policy.
When government attempts to increase spending power in the economy, by decreasing taxation and increasing government spending. This is normally to combat the effects of recession.
Crowding out
When the government borrows money from the private sector, using up funds that could potentially be used for private sector investment by firms.
Bonds
The 'IOUs' which are the main means by which the UK government funds its fiscal deficit.
National Debt
The accumulation of all government borrowing (not to be confused with the annual budget deficit).
Structural deficit
When budget surpluses and deficits do not cancel each other out over the course of the economic cycle.
Austerity
An informal term used to refer to the reduction in goverment spending deemed necessary to reduce budget deficits and the national debt.
Credit rating
A rating given to countries by organisations such as Moody's and Standard and Poor's. It can affect the interest rate at which governments are able to borrow from financial markets.
Progressive Taxation
A tax or approach to taxation which sees the rich pay a greater proportion of their income than the poor e.g. income tax.
Regressive taxation
A tax or approach to taxation which sees the poor pay a greater proportion of their income than the rich e.g. cigarette duties.
Proportional Tax
A tax or approach to taxation which sees both rich and poor pay the same proportion of their income.
Personal allowance
The amount individuals can earn before they are taxed.
The budget
The official 'launch' of fiscal policy for the new financial year, made by the Chancellor of the Exchequer in March of each year.
The Autumn Statement
An 'update' to the budget which takes place at the midpoint of the financial year.
Automatic stabilisers
The system that exists in the UK whereby the economic cycle is 'smoothed out' by people falling out of or going into higher tax thresholds or claiming benefits during a recession.
Discretionary fiscal policy
When the government changes the marginal rates of taxation e.g. changing the top rate of income tax from 50p to 45p for income earned above £150,000.
Marginal tax rates
The rate at which tax is set in different bands (thresholds).