Government and Public Finance: notes

Taxes

• Direct tax: paid straight to the state by the person taxed, such as income tax.
• Indirect tax: added to goods, such as value added tax (VAT). The seller collects it.
• Progressive: the rate rises as income rises. Regressive: takes a bigger share from the poor. Proportional: the same rate for all.
• Good tax rules: certain, convenient, economical and fair.

The budget

• Budget deficit: spending is more than revenue. Surplus: revenue is more than spending.
• Public goods: such as street lights. Nobody can be excluded, so the state provides them.
• Subsidy: money paid to producers to lower prices or raise output.

Aims and policy

• Main aims: low unemployment, stable prices, growth and a healthy balance of payments.
• Fiscal policy: changing taxes and spending. Monetary policy: changing interest rates and the money supply.