Ch. 14- Fiscal Policy.ppt
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1、Ch. 14: Fiscal Policy,Federal budget process and recent history of outlays, tax revenues, deficits, and debts Supply-Side Economics Controversies on effects of deficits on investment, saving, and economic growth Redistribution of benefits and costs across generations Fiscal policy as a stabilization
2、 tool,The Federal Budget and Fiscal Policy,Federal budget annual statement of the federal governments outlays and tax revenues. Two purposes finance the activities of the federal government achieve macroeconomic objectives Fiscal policy the use of the federal budget to achieve macroeconomic objectiv
3、es Employment Act of 1946it is the continuing policy and responsibility of the Federal Government to use all practicable means . . . to coordinate and utilize all its plans, functions, and resources . . . to promote maximum employment, production, and purchasing power.,Timeline for 2007 Budget,Fisca
4、l Policy,The Council of Economic Advisers monitors the economy keeps the President and the public well informed about the current state of the economy forecasts of where it is heading. source of data that informs the budget-making process. Congressional Budget Office Forecasts effects of legislative
5、 changes on budget and economy,Source of Revenues,Revenues,Composition of Outlays,Federal Deficits and Public Debt,Budgett = revenuet outlayst if Budgett 0 budget surplus if Budgett 0 budget deficitDebtt = Debtt-1 - budgett-1 Budget deficits increase debt Budget surpluses decrease debt,Revenues and
6、Outlays,CBO data on budget deficits/debt: http:/www.cbo.gov/budget/data/historical.shtml,The U.S. Government Budget in Global Perspective,State and Local Budgets,In 2005, when federal government outlays were about $2,500 billion, state and local outlays were almost $1,700 billion. Most state expendi
7、tures were on public schools, colleges, and universities ($550 billion); local police and fire services; and roads. Greatest source of state revenue: income & sales taxes Greatest source of local tax revenue: property & sales taxes Many states (including Ohio) have a balanced budget amendment.,Suppl
8、y-Side Economics,Fiscal policy aimed at increasing LAS Income taxes affect LAS by affecting labor supply. Higher income taxes reduce labor supply & reduce LAS “Supply-siders” argue for low marginal tax rates. Graph the effect of an increase in income tax rate on before-tax real wage rate, after-tax
9、real wage rate. Tax-wedge Equilibrium employment LAS,Effect of an increase in income tax rate,Tax Wedge Comparisons,Federal Income Tax Marginal Rates: 2007,Top Marginal Tax Rates,Source: http:/www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213,Historical average tax rates in U.S. by Income
10、Quintile: Income Tax Only,Source: http:/www.cbo.gov/doc.cfm?index=6133&type=0 Includes individual income tax only,.:,Share of Federal Income Taxes Paid by Quintile,Source: http:/www.cbo.gov/doc.cfm?index=6133&type=0 Includes individual income tax only,.:,The Supply-Side: The Laffer Curve.,Tax Revenu
11、e,Tax Rates,Laffer Curve and Capital Gains Tax,Source: http:/time- Supply-Side: Investment and Saving,GDP = C + I + G + (X M) GDP = C + S + T I + G + (X M) = S + T I = S + (T G) + (M X) Private saving PS = S + (M X) Government Saving GS=T-G I = PS + GS,The Supply-Side: Investment and Saving,The Supp
12、ly-Side: Investment and Saving,Fiscal policy influences investment and saving in two ways:Taxes affect the incentive to save and change the supply of loanable funds.Government saving is a component of total saving and the supply of loanable funds.,The Supply-Side: Investment and Saving,A tax on capi
13、tal income decreases the supply of loanable funds a tax wedge is driven between the interest rate and the after-tax interest rate Investment and saving decrease.,The Supply-Side: Investment and Saving,Effect of a government budget deficit on saving and investment - crowding out,The Supply-Side: Inve
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