EC140 Lecture Notes - Real Wages, Tax Wedge, Laffer Curve
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EC140 Full Course Notes
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Document Summary
Federal budget: annual statement of federal government"s outlays. Fiscal policy: use of federal budget to achieve macroeconomic. Maintain full employment, economic growth, price level stability. Minister of finance presents budget plan to parliament. Parliament debates plan and enacts laws necessary to redistribution) objectives. May not always be in interests of economy. Revenues come from: taxes, indirect taxes (gst/hst), investment income. Balanced budget: revenues = outlays spending relative all income earned in canada. Budget balance usually presented as percentage of gdp -> shows. Government collects most of its money through taxes, then spends. Effect of fiscal policy on employment, potential gdp, aggregate. Income tax changes full employment, potential gdp, aggregate. Taking part of peoples" income through taxes reduces income. Can have strong effects on incentives to work. Supply of labour decreases because tax decreases after- tax wage rate rate falls tax wage rates. Before-tax real wage rate rises but after-tax real wage. Tax wedge: gap created between before-tax and after-
