Fiscal policy
| English | Chinese | Pinyin |
|---|---|---|
| fiscal policy | 财政政策 | cái zhèng zhèng cè |
| government spending | 政府支出 | zhèng fǔ zhī chū |
| taxation | 税收 | shuì shōu |
| budget balance | 预算平衡 | yù suàn píng héng |
| expansionary | 扩张性的 | kuò zhāng xìng de |
| budget deficit | 预算赤字 | yù suàn chì zì |
| contractionary | 紧缩性的 | jǐn suō xìng de |
| indirect tax | 间接税 | jiàn jiē shuì |
| direct tax | 直接税 | zhí jiē shuì |
Spending and taxing the economy
- A government collects taxes and spends on schools, roads and hospitals. By changing how much, it can steer the whole economy.
- That is fiscal policy 财政政策.
Fiscal policy uses:
Fiscal policy works through the government budget.
The gap between government spending and tax revenue is the budget ______.
Spending above revenue is a deficit; below it, a surplus.
The two levers
- Government spending 政府支出 — on public services, investment and benefits.
- Taxation 税收 — direct (on income, profit) and indirect (on goods, like VAT).
- The gap between them is the budget balance 预算平衡.
Progressive, regressive and proportional taxes
Fiscal policy shifts AD
Spending more or taxing less shifts aggregate demand right — raising output, but also the price level.
Expansionary fiscal policy involves:
It boosts demand by spending more or taxing less.
Expansionary 扩张性的 fiscal policy
- To boost a weak economy: spend more and/or cut taxes.
- This raises demand, output and jobs — but may widen the budget deficit 预算赤字 and stoke inflation.
Which is a direct tax?
Income tax is paid directly on income — a direct tax.
Raising taxes is a contractionary fiscal policy used to cool an economy.
Higher taxes reduce demand, curbing inflation.
Contractionary 紧缩性的 fiscal policy
- To cool an overheating economy: spend less and/or raise taxes.
- This curbs demand and inflation — but can slow growth and cost jobs.
Direct vs indirect tax 间接税. A direct tax 直接税 is paid straight to the government on income or profit (income tax). An indirect tax is added to a good's price and collected by sellers (VAT, duties).
You've got it
- fiscal policy = government spending and taxation
- expansionary (spend more / tax less) boosts demand; contractionary does the opposite
- direct taxes hit income/profit; indirect taxes are added to prices