Questions tagged [fiscal-policy]

the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy.

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Automatic stabilisers - Direct taxes vs Indirect tax

I have been reading a paper by the OECD about what can be done to strengthen financial stabilizers. https://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=ECO/WKP(2020)44&...
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In 'corrupt' countries, what proportion of government funds get spent on what they are allocated?

Are there any estimates across countries of the proportion of funds that actually get spent on what they're allocated to be spent on?1 Most OECD countries would probably have ratios close to 1:1, that ...
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Monetary and fiscal policies: problem and solution approach

Can the community recommend resources about macroeconomics / public finance that (roughly) follow the following design: Here's a macroeconomics / public finance economic problem (description, ...
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Why there's a large difference between fiscal deficit and debt to GDP ratio of a country?

The fiscal deficit is the gap between expenses and earnings. For the fiscal year 2020-21, India's debt to GDP ratio was 59.3%; and the fiscal deficit was 9.2% of GDP. How come debt is larger than the ...
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Growth Premium and Debt consolidation

I'm interested in country cases (e.g., Argentina or another EME) where there have been periods of high economic growth but worsening (or at least not improving) fiscal balances. This could be either ...
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Is it any more harmful for the government to mandate a wage increase?

Generally speaking, is it any more advantageous/disadvantageous for the government to mandate a wage increase than for companies to increase wages based on the supply of labor?
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Sources for information about Danish general government finances since 2000 (in English)

for a report I have to write about Danish public finances and fiscal policy (budget balance, debt, revenues, expenditures) I'd like detailed information dating back to 2000 or publications giving an ...
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Large National Debt by borrowing money from foreign sources

I have a question about the greater severity of large national debt caused by borrowing from foreign sources. I am reading a book about elementary Economics and am currently on a chapter discussing ...
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The link between economic growth, inflation, interest rates and fiscal deficit

I want to ask a question about how economic growth, inflation, interest rates is linked to fiscal deficit. I was reading a book on introductory economics and the following passage came up: If a ...
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Controversy surrounding the Fiscal Theory of the Price Level (FTPL)

I recently started reading a draft of John Cochrane's book on the Fiscal Theory of the Price Level. In the preface he states that the "[...] theoretical controversies are over." However, ...
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When the LM schedule is vertical, a change in fiscal policy (government spending) only increases the interest rate. What’s the intuition behind this?

As the government spending increases, the aggregate expenditure increases. This results in the increase in income. Now in the money market as the income increases, transaction demand for money ...
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How was sulphuric acid used to back money?

I remember reading in a economics and history book that sulphuric acid production was used as an alternative to gold standard as the basis of the value of currency due to it’s importance in making ...
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non strategic sovereign default

Much of the sovereign default literature (e.g., Arellano (2008), Bulow and Rogoff (1989)), considers that sovereign default is strategic: i.e., defaults occurs if the current benefits outweigh ...
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Loosely speaking, are all modern economies 'Keynesian' in their stance on spending during downturns?

Keynesian economics is defined as: increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the depression. Do all modern economies adopt a Keynesian ...
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What would monetarists do when interest rates approach zero and become ineffective?

So monetarist economists such as Milton Friedman focus on managing the money supply and lower interest rates as a solution to economic downturn. But what would they do in a recession as the interest ...
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Where to find information to establish causation between economic policies and economic data?

I've merely taken a few economic courses in college -not an economics major-, so my knowledge regarding the field is limited. Lately I've been interested in learning about the economic impact of ...
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Why did John Keynes believe that monetary policy to be less effective than fiscal policy?

So why did John Keynes believe that monetary policy to be less effective than fiscal policy for stabilising the level of economic activity, particularly in a recession? Lowering markets' interest rate ...
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Monetary policy rate and fiscal deficit

A colleague in work mentioned today that Chile is keeping a flat monetary policy rate given "there is a higher expected fiscal deficit". If there is an expected fiscal deficit (i.e., ...
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Can someone please explain how personal savings and fiscal deficit are related in this context? [closed]

The lines which i have highlighted is what I want to be explained to me. This is with reference to indian economy
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Macroeconomics differences of 2008 financial crisis and 2020 economic crisis

How is 2020 financial crisis different from 2008 financial crisis? For example, why have stock market indices (e.g. S&P500, NASDAQ-100) recovered so quickly (about 3 months instead of longer than ...
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How to calculate fiscal space for a country?

I would greatly appreciate if you could explain me how to calculate fiscal space for an specific country. Or, could you please introduce me some references which explain it's calculation step by step ...
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The government does not need to gather capital via tax and Treasuries to spend? According to MMT

I have watched Warren Moslers interview. https://www.youtube.com/watch?v=W97s3zbFKvc&t=841s. At 7:26 he says that the Treasury does not issue securities for the purpose of financing spending (it ...
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How can autonomous private spending change budget surplus?

I was reading Keynesian economics in R.Dornbusch's book where he mentioned the defects of using budget surplus as a measure where he says it can be changed and effected by autonomous private spending ...
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Difference type of crowding out effect in economics

In macroeconomics I came across two type of crowding out. First, in IS LM model where in classical case, when LM curve is vertical increase in government expenditures have no increase in output i.e. ...
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What does it mean by Global recession?

I am bit curious to understand what it actually means when I read global recession is coming soon. There are some questions which pop in my mind reading such news. Some of them are: What causes ...
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Does higher tax on luxury goods does more harm than benefit?

I was studying Fiscal policy and I came across measures to reduce income inequality by using fiscal tools. One of the tool mentioned in that was - Higher taxes on luxury goods This makes sense that ...
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Why is Crowding out more effective at full employment?

Now my professor explained to me that at full employment the increase in G (gov expenditure) shifts the IS curve to the right, but at the same time the price level increase from the rightward shift in ...
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which policy (fiscal or monetary) is better to stabilize the cycle?

I am currently studying for a test and the following sentence "In an open economy with high capital mobility, monetary policy is preferable to fiscal policy to stabilize the cycle", the "answer" is ...
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How does a govt surplus increases investment?

From the closed economy equilibrium condition $I = S + (T - G)$, how does exactly a surplus (which I assume would be used for paying debt) increases investment in the same amount? I ask that because ...
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Government deficit

When the economy of a government is facing a deficit, why can't the government just increase the taxes to pay for its expenses? I've read that it should rather borrow money, because increasing the ...
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Do changes in fixed taxes have a bigger effect on real GDP compared with government spending because they affect consumption

True or False: Changes in fixed taxes have a bigger effect on real GDP compared with government spending because they affect consumption
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Could the inflation following the Gold Rush have been avoided, are we any "wiser" on inflation now?

Quoting Milton Friedman on the inflationary period shortly following the American Gold Rush in California: "Because there was more gold, they had to pay a little more gold to buy goods and ...
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What is the effect of expansionary fiscal policy in case liquidity trap situation?

I've read that liquidity trap means interest rate is at its minimum and increase in real money stock will not lead to fall in interest rate because people will be demanding whatever the amount is ...
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Fiscal budget: spending in real vs nominal terms

What does it mean in the context of a budget to “freeze spending in real terms”? And how would this differ from freezing spending in “nominal terms”? I am looking to understand how this would be ...
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Advice for finding literature for thesis

I have to write my bachelor thesis in the coming months and I was planning on replicating one of the leading papers of the last years in the field of macro economics. Problem is that I am ...
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Universal Basic Income [closed]

In 2017 some countries have adopted the Universal Basic Income as an alternative to Welfare Payments, my question is, is it economically feasible by governments?
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Debt accumulation equation derivation: valid given that it rests on calculus and the time period is a year? (nowhere near infinitesimal?)

Above is an image of what I’m referring to. The top ‘rule of thumb’ is derived using calculus, and hence is only valid for infinitesimal changes in t. However, this equation is considered over the ...
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How is reducing government expenditure supposed to reduce aggregate demand?

In my coursebook it says that in a deflationary fiscal policy governments may reduce government expenditure (such as building hospitals and road constructions) to reduce aggregate demand but I don't ...
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Does the separation of FinCEN, and The Federal Reserve protect the integrity of a representative democracy? [closed]

From my understanding, FinCEN is controlled or heavily influenced by the UN. In addition, The Federal Reserve is not a governmental body, yet it has appointees from the current administration. I'm ...
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How does Limited Friction affect a two-period model? Does the Ricardian Equivalence hold?

Consider a two period model with limited commitment involved. Each consumer has a component of wealth which has value $pH$ in the future period, cannot be sold in the current period, and can be ...
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What is fiscal impulse?

I came across this term in the following paragraph and I could not comprehend what it meant. The new WPI series does not include any indirect taxes, which brings it conceptually closer to the ...
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Why is there a structural deficit/surplus?

I'm going through Fiscal Policy and I'm reading about Structural Budget and Cyclical Budget. To my understanding, Cyclical Budget is what occurs when automatic fiscal policy is in use. So G and T are ...
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Is there a term for economic policy design built from minimizing per-household adverse impact?

May be easiest to start with an example: let's say I'm looking to eliminate the mortgage interest deduction, but want to minimize the impact on households from doing so. I also want the change to be ...
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Why can't direct taxes be passed on to the consumer? [duplicate]

What stops firms increasing prices of goods in the case of an increase of a direct tax such as corporation tax?
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Since it doesn't change the money supply, how can an "expansionary" fiscal policy alone spur economic growth?

I understand how monetary policy can be used to heat up an economy by increasing the money supply, but how can a fiscal policy do so? When the government borrows money to increase spending, it is not ...
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Economic effects of a Commons Capital Depository

Yanis Varoufakis (Ιωάννης Βαρουφάκης) proposes to fund a universal basic income (UBI) using dividends from a commons capital depository, essentially channeling a percentage of shares issued at an ...
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How can governments seemingly run permanent budget deficits?

How can countries afford to run budget deficits for decades on end and not become overburdened by interest payments on those debts?
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Is there a good mechanism to incentivize leveraged firms to take less risks?

It seems that there are some circumstances, say when the government foresees a financial crisis, where it would like firms to hedge, take less riesk etc. However, leveraged agents benefit from risk, ...
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How does an elastic Money Demand affects the effectiveness of fiscal policy?

From my notes: 'The elasticity of Money Demand reduces the impact on the interest rate of the increase in government spending...' My question is: if the Money Supply is inelastic, the elasticity of ...
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3 votes
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Macroeconomics: Aggregate Demand, Equilibrium Dynamics and Expenditure Multipliers

I am having a hard time with the following economic questions (See attached). Here is my approach: Note about the curves: The graph below depicts an economy where a decline in aggregate demand has ...
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