The State Budget
A financial plan where revenue equals spending.
Balanced Budget
Taxes like VAT or sales tax collected by a third party.
Indirect tax
The total accumulation of all past annual deficits.
Public Debt
The two primary tools of fiscal policy.
Taxes and Government Spending
Curve showing the link between tax rates and revenue.
Laffer Curve
When annual spending exceeds tax revenue.
Budget Deficit
A system where higher earners pay a higher percentage.
Progressive Tax
The legal limit on how much a government can borrow.
Debt Ceiling
Policy used to stimulate growth during a recession.
Expansionary Policy
A Gini Coefficient of 0 represents this.
Perfect Equality
Spending that must be approved by new laws each year.
Discretionary Spending
The tax rate applied to the very last dollar earned.
Marginal Tax Rate
Money a government borrows from its own citizens.
Internal Debt
Programs like unemployment benefits that react to the economy automatically.
Automatic Stabilizers
When government borrowing forces interest rates up for everyone else.
Crowding-Out Effect
The budget deficit minus interest payments on old debt.
Primary Deficit
The study of who truly bears the economic burden of a tax.
Tax Incidence
The act of paying interest on outstanding debt.
Servicing the Debt
When an initial spending increase leads to a larger rise in GDP.
The Multiplier Effect
Ratio used to check if a country can manage its total debt.
Debt-to-GDP Ratio
A budget estimate that ignores the effects of the business cycle.
Cyclically Adjusted Budget
The range where higher tax rates actually reduce total revenue.
Prohibitive Range
Printing money to pay off government debt.
Monetizing the Debt
The theory that people save tax cuts to pay for future tax hikes.
Ricardian Equivalence
Having both a budget deficit and a trade deficit at once.
Twin Deficits