Definition
Fiscal Policy
Refers to the influence of government spending and taxation to impact the aggregate demand.
Sources of Government Revenue
- As fiscal policy includes the use of government resources, it is important to know the sources of those resources. Sources of government revenue include:
- Tax Revenue
- Direct Tax Revenue
- Indirect Tax Revenue
- Sale of Goods and Services
- 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.
- Sale of Government Assets
- The sales of government assets is transferring ownership to private entities (privatisation).
- Tax Revenue
Governments may also borrow money (which can count as revenue), however, this creates debt that must be repaid with interest (regarded as expenditure).
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:
- Current Expenditures
- Capital Expenditures
- Transfer Payments
Current Expenditures
Current expenditures are for daily or recurring operations, consumables, and services. These could be:
- Salaries for public employees like teachers and police officers.
- Operating costs for schools, hospitals, and government offices, e.g supplies for public schools.
