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Canada (493,093)
Economics (1,480)
EC140 (397)

29. Fiscal.docx

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Wilfrid Laurier University
Rizwan Tahir

Chapter 29Fiscal policyGovernment budgetsfederal budget annual statement of the federal governments outlays and tax revenues with the laws and regulations that approve and support those outlays and revenues1 To finance the activities of the federal government 2 To achieve macroeconomic objectivespursue fiscal policy Fiscal policy the use of the federal budget to achieve macroeconomic objectives such as full employment sustained economic growth and price level stabilityFederal government outlays and revenues and total government outlays and revenues fluctuate similarly but totalfederal so total outlays fluctuate more Provincial outlaysrevenues vary a great deal across provinces Budget makingFederal government and Parliament make fiscal policyAfter a process of consultations the Minister of Finance presents a budget plan to ParliamentParliament debates the plan and enacts the laws necessary to implement itRevenue sourcesPersonal income taxes are the largest revenue source payroll taxes CPP contributions EI premiumsMildly progressive in Canada as those with high income pay larger proportion than those with low incomeincreasing marginal tax rateas income increases move to higher tax bracketPayroll taxes are regressive those with high income pay a smaller proportion of income as tax than those with low incomedue to caps on insurablepensionable earningsTaxes on wage income this accounts for the tax wedge Second largest source is indirect taxes Goods and Services Tax GST and taxes on gasoline alcoholSmallest source is corporate income tax paid by companies on their profits and investment income from government enterprises and investments OutlaysLargest outlay is transfer payments to people businesses other levels of government etc It includes unemployment cheques and welfare payments etcExpenditures on goods and services G include national defense government cars highwaysDebt interest interest on the government debt is large because of huge debt debtservice payments i x D where i is the interest rate and D is the stock of government debtletting Ttax revenue of government the budget constraintGiDTborrowing governments budget constraint is government expendituretax revenueborrowingthis is true when there is little or no inflationgovernments can also finance spending through increase in money supply inflation Budget BalanceBudget balancerevenuesoutlays Budget surplus revenuesoutlaysbudget deficit0Budget deficit outlaysrevenuesExcess of total government expenditure over total net revenue in a given yearGovernments borrowingchange in governments stock of debt during the year
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