3.6.1 Fiscal policy Notes

Sources of Government Revenue

1. As fiscal policy includes the use of government resources, it is important to know the sources of those resources. Sources of government revenue include:
   1. Tax Revenue
      1. Direct Tax Revenue
      2. Indirect Tax Revenue
   2. Sale of Goods and Services
      1. There are services which governments offer that consumers need to pay for such as electricity, gas, transportation, water, etc. This is also a source of revenue for the government.
   3. Sale of Government Assets
      1. The sales of government assets is transferring ownership to private entities (privatisation).

Government Expenditures

Governments spend money to provide public goods and services, support the economy, and achieve their objectives. Government expenditure (G) is divided into three main categories:

1. Current Expenditures
2. Capital Expenditures
3. Transfer Payments

Current Expenditures

Current expenditures are for daily or recurring operations, consumables, and services. These could be:

1. Salaries for public employees like teachers and police officers.
2. Operating costs for schools, hospitals, and government offices, e.g supplies for public schools.
3. Subsidies to support industries or lower the cost of living.
4. Interest payments for loans.

Capital Expenditures

Capital expenditures are public investments or spending on physical capital such as infrastructure. These include:

1. Building roads, bridges, and public transportation systems.
2. Constructing schools, hospitals, and government buildings.
3. Investing in research and technology as well as innovation.

Transfer Payments

These are payments made by the government to individuals who are in vulnerable groups.

1. Transfer payments are used to redistribute income and provide social support. Examples include:
   1. Unemployment benefits.
   2. Pensions for retirees.
   3. Child support and welfare payments.