What is the amount of government spending? Government expenditure multiplier. Tax multiplier. Balanced budget multiplier. Budget deficit and budget surplus. Types of budget deficit. Financing the budget deficit
Government spending‒ these are the expenses of the state to perform its functions, as well as to purchase goods and services for its own consumption or to regulate demand in goods markets.
Government spending has a direct impact on national output and employment, along with household consumption spending and firm investment.
Government expenditures have a multiplier effect, which is determined through the indicator i the government expenditure multiplier.
Government expenditure multiplier‒ this is the ratio of the increase in gross domestic (or national) product due to the increase in government spending:
where m g is the government spending multiplier;
ΔY – absolute increase in gross national product;
ΔG is the absolute increase in government spending;
MPC is the marginal propensity to consume.
The effect of the government spending multiplier is displayed on the Keynesian cross chart (Fig. 15.3). If government spending increases by ΔG, then the planned spending curve shifts upward by the same amount, the equilibrium point moves from position A to position B, and the equilibrium output increases from Y 1 to Y 2 by the amount ΔY.
Rice. 15.3. Impact of government spending on national income
If the state increases its expenditures and does not change the amount of tax revenues, then the GDP (GDP) increases several times, since government expenditures give rise to new rounds of consumer spending, which in turn will lead to a multiplying increase in investment.
This multiplier is also defined as the inverse of the marginal propensity to save, namely due to increased consumption by households.
State income and expenditures have a constant tendency to change and adjustment, and, therefore, are under direct regulation and control by the state. The primary factors influencing this process are rising prices, changes in the exchange rate and loan interest.
At the same time, the mechanism of state influence on cyclical fluctuations of the economy allows: during a recession, to increase government spending and thereby increase production output, and during a boom, to reduce expenses, protecting the economy from “overheating.”
The state's fiscal policy reflects not only the impact on the national economy (national production) of changes in the amount of government spending, but also the effectiveness of the system for generating budget revenues primarily through the taxation mechanism.
GDP growth in a closed economy depends not only on consumer and government spending and investment, but also on tax revenues to the state budget.
An increase in tax revenues in a market economy leads to an increase in national income, and by an amount greater than the initial increase in taxes. This phenomenon is characterized by the action of the tax multiplier:
where m T is the tax multiplier; ΔТ – change in tax revenues.
The effect of the tax multiplier is shown in Fig. 15.4.
Rice. 15.4. Impact of Tax Cuts on National Income
The influence of the state on the cyclical fluctuations of the national economy is also manifested in an increase or decrease in the tax burden on households and businesses. Reducing taxes for individuals leads to an increase in personal disposable income and, consequently, to an increase in consumption, which in turn will increase aggregate demand and, accordingly, supply. Reducing taxes for enterprises is also a stimulating measure, since most of the profits remain at the disposal of companies, and the opportunity to increase investments grows (demand for investment goods increases).
Analyzing the formulas for the government spending multiplier and the tax multiplier, we can conclude that the first will always be greater than the second by one. Consequently, the multiplier effect from an increase in government spending will always be greater than from a tax cut. This action must be taken into account when choosing fiscal policy instruments.
If government spending and taxes increase by the same amount, then equilibrium output also increases. In this case they talk about balanced budget multiplier , which is always equal to or less than one.
The balanced budget multiplier does not imply the absolute elimination of any budget deficits or surpluses. We are talking about balancing changes in the revenue and expenditure parts of the budget, that is, maintaining the equality ΔT = ΔG.
Questions for self-control
1. Describe the functions of the budget system of society.
2. Name the main groups and subgroups of budget revenues of the Russian Federation.
3. Name the sections and subsections of the classification of budget expenditures in Russia.
4. Explain the structure of revenues of the consolidated budget of the Russian Federation in 2008 and 2011.
5. What is a tax, and what types of taxes, according to the current legislation of the Russian Federation, are considered federal taxes?
6. What types of taxes, according to the current legislation of the Russian Federation, are considered regional and local taxes?
7. What dependence is reflected in the Laffer curve?
8. Conduct cross-country comparisons of tax rates.
9. What is a budget deficit? Name its main types.
10. Describe the mechanism for financing the budget deficit. Name the internal and external sources of its financing.
11. Name and explain the problems facing the state related to cash and debt financing of the budget deficit.
12. Define fiscal (budgetary and tax) policy. Name its main types.
13. What are the main goals and objectives of fiscal policy?
14. Explain the impact of government spending on national income.
15. Explain the mechanism of action of the tax multiplier.
16. What does the balanced budget multiplier show?
Please do not be late, behave decently, do not talk when answering - stand up, be active in your answers. Do not place bags or bottles on desks; there should be nothing on the table except notebooks and pens.
You need to memorize the definitions that I have printed for you. Look at the progress of solving problems; we will solve such problems.
Students will be rewarded for good answers.
Open lesson topic: Fiscal policy
Before solving each problem, I ask for basic definitions:
Terms for 1 problem:
Budgetary and tax (fiscal) policy government measures to change government spending, taxation and the state of the state budget, aimed at ensuring full employment, balance of payments equilibrium and economic growth while producing non-inflationary GDP.
Expansionary fiscal policy ( fiscal expansion) in the short term, its goal is to overcome the cyclical downturn in the economy and involves increasing government spending G, reducing taxes T, or a combination of these measures. In the longer term, the policy of reducing
taxes can lead to an expansion in the supply of factors of production and an increase in economic potential.
Contractionary fiscal policy ( fiscal restriction) aims to limit the cyclical recovery of the economy and involves reducing government spending G, increasing taxes T, or a combination of these measures.
In the short term, fiscal policy measures are accompanied by the effects of multipliers on government spending, taxes and a balanced budget.
Government Expenditure Multiplier Formula:
– change in the equilibrium volume of production;
– increase in government spending;
- a multiplier that shows how much the equilibrium level of income in a closed economy increases as a result of an increase not only in government, but also in any of the autonomous expenses per unit. The main factor determining the size of the multiplier is the marginal propensity to consume (MPC).
Tax multiplier:
– changes in taxes.
The tax multiplier indicates that when the total amount of taxes increases, income and output grow by an amount that is several times greater than the increase in taxes. The tax multiplier is always negative.
Balanced Budget Multiplier:
The multiplier effect of tax cuts is weaker than that of increasing government spending, which is algebraically expressed as the spending multiplier exceeding the tax multiplier by one unit. This is a consequence of the stronger impact of government spending on income and consumption (compared to changes in taxes). This difference is decisive when choosing fiscal policy instruments. If it is aimed at expanding the public sector of the economy, then in order to overcome the cyclical recession, government spending is increased (which has a strong stimulating effect), and taxes are increased to contain the inflationary rise (which is a relatively mild restrictive measure).
Task No. 1. The economy is described by the following data:
C = 20 + 0.8 (Y - T + F) (consumption);
I = 60 (investment);
T = 40 (taxes);
F = 10 (transfers);
G = 30 (government spending)
Y - production volume
0.8 – marginal propensity to consume
a) Calculate the equilibrium level of income.
b) The government increases spending to 40 in order to stimulate the economy:
What is the size of the government spending multiplier?
c) The government increases taxes from 40 to 50 (at the level of government spending G = 30):
What happens to the planned spending curve?
How will the equilibrium level of income change?
What is the tax multiplier?
How will the state budget balance change?
d) The government simultaneously increases government spending from 30 to 40 and taxes from 40 to 50:
What happens to the planned spending curve?
How will the equilibrium level of income change?
What happens to the multiplier effect?
How will the state budget balance change?
Solution
a) To calculate the equilibrium level of income, we substitute the numerical values of C, 1, T, F, G into the main macroeconomic identity and solve it with respect to Y:
Y = 20 + 0.8 (Y 40 + 10) + 60 + 30.
After algebraic transformations we get: Y=430 => this is the initial equilibrium (point A).
b) With an increase in government spending by 10 (from 30 to 40), the planned expenditure curve will shift upward by 10 (see Fig. 1):
To calculate the change in the equilibrium level of income when moving from point A to point B, we use the formula for the government spending multiplier:
At point B, the equilibrium level of income has increased to 480. The government spending multiplier is equal to:
Before the fiscal expansion, the state budget was balanced:
After the fiscal expansion, arose budget deficit in the amount of 10, since government spending increased by 10, but tax revenues did not change.
c) With an increase in taxes by 10 (from 40 to 50), the planned expenditure curve will shift down by the amount -ΔT*MRS = -10 x 0.8 = -8 (see Fig. 2):
The equilibrium level of output will decrease by:
– tax multiplier formula
The economy will move from point A to point B, where the equilibrium output will be 390.
The tax multiplier is:
After the tax restriction, arose budget surplus in the amount of 10, since the value of government spending and transfers is still 40, and tax revenues have increased to 50.
d) With a simultaneous increase in government spending from 30 to 40 and taxes from 40 to 50, the planned expenditure curve will move up by 2, since the impact of budget expansion on aggregate demand is relatively stronger than tax containment (see Figure 3):
Figure 3
The equilibrium will move from point A to point B, and the equilibrium level of income in accordance with the balanced budget multiplier will also increase by 10 to 440.
This can be checked using the calculation:
Y = 20 + 0.8 (Y - 50 + 10) + 60 + 40;
The economy now has a balanced budget multiplier effect equal to one:
When pursuing such a policy, the budget will remain, as originally, balanced:
Problem No. 2 . (formulas from task No. 1).
The country's economy is characterized by the following data:
Actual income (Y) = $4,000
Marginal propensity to consume (b) = 0.8.
Equilibrium income (Y*) = $4200
a) How should government spending change (other things being equal) for the economy to reach equilibrium (Y* = $4,200)?
b) How should the amount of tax revenue change (other things being equal) for the economy to reach an equilibrium state?
A) Δ Y = Δ G* b, where Δ Y is the increase in income, Δ G is the increase in government spending.
Δ Y = Y* - Y = $4200 – $4000 = $200
M = 1/1- b = 1/1-0.8 = 1/0.2 = 5
Δ G = 40, i.e. government spending should increase by $40.
B) Δ Y = Δ T* taxation multiplier, where T are taxes.
M tax region = = -4
MPS – marginal propensity to save
200 = Δ T * (-4)
Δ T = -50, i.e. taxes should be reduced by $50.
Definitions for problem 3:
The main structural instruments of the state budget are: state budget revenues (taxes, fees); state budget expenditures (financing the economy, socio-cultural programs, defense, management).
The main types of state budget are:
1. Normal - in this case, the expenditure side is equal to the income side.
2. Scarce, i.e. expenses exceed income.
The main forms of a deficit budget are:
- structural deficit- a deficit resulting from deliberate government action to increase government spending and reduce taxes to prevent recessions. This is the difference between expenses (income) and income (expenses) of the budget under conditions of full employment;
- cyclical deficit- a deficit arising as a result of a cyclical decline in production and reflecting crisis phenomena in the economy, the inability of the government to keep the financial situation under control. The cyclical deficit is often estimated as the difference between the actual budget deficit and the structural deficit.
Problem No. 3: Assume that government purchases are equal to 500, the tax function is T = 0.4U, the transfer function is F = 0.2U, the price level is P = 1. The federal debt is D = 1000 at an interest rate of R = 0.1. The actual output (V) is 2000, and the potential output is 2500.
a) Is the government budget balance positive or negative?
b) What is the size of the structural budget deficit?
c) What is the size of the cyclical budget deficit?
a) The state budget balance can be calculated by comparing the expenditure and revenue parts:
Budget expenditures = government purchases (G) + transfers (F) + +expenses for servicing public debt (DxR) = = 500 + 0.2x2000 + 0.1x1000 = 500 + 400 + 100 = 1000.
Budget revenues = tax revenues (T) = 0.4x2000 = 800.
Actual budget deficit = 1000 - 800 - 200.
b) The structural deficit can be calculated by substituting potential output instead of actual output into calculations:
Structural deficit = = 500 + 0.2x2500 + 0.1x1000 - 0.4x2500 = 100.
c) Cyclical budget deficit = actual deficit - structural deficit 200 – 100 = 100.
Related information.
Budget revenues are funds received free of charge and irrevocably in accordance with the legislation of the Russian Federation at the disposal of government bodies of the Russian Federation, constituent entities of the Russian Federation and local self-government. Income is divided into groups, subgroups, articles and sub-articles (four levels). In Russia there are four income groups:
tax;
non-tax;
gratuitous receipts;
income of targeted extra-budgetary funds.
Tax revenues are discussed in detail in the first paragraphs of this chapter.
The non-tax income group includes a number of subgroups. These subgroups include, for example, income from property in state and municipal ownership, income from the sale of land and intangible assets, income from foreign economic activity, etc.
Gratuitous receipts include transfers from non-residents, budgets of other levels, state extra-budgetary funds, government organizations, etc.
Targeted extra-budgetary funds are divided into social and economic. Social funds include the Pension Fund of the Russian Federation, the State Employment Fund of the Russian Federation, the Federal and territorial funds of compulsory medical insurance, the Social Insurance Fund of the Russian Federation. Economic funds are the Development Fund of the Customs System of the Russian Federation, road funds, etc.
In turn, subgroups are divided into articles and subarticles. For example, the subgroup “tax on profit (income), capital gains” is divided into two articles: tax on profit (income) of enterprises and organizations and personal income tax. The article “income tax from individuals” is divided into three sub-articles: income tax withheld by enterprises, institutions and organizations, income tax withheld by tax authorities, and tax on gambling business.
State budget expenditures are funds allocated to financially support the tasks and functions of state and local self-government. The classification of state budget expenditures is a grouping of budget expenditures at all levels, reflecting the direction of budget funds to perform the main functions of the state. The grouping has a four-level structure: sections and subsections, target items and types of expenses. Sections include national issues, national defense, national security and law enforcement, national economy, housing and communal services, environmental protection, education, culture, cinematography and the media, healthcare and sports, social policy, interbudgetary transfers, etc. .
Budgetary allocations for federal budget expenditures, approved by the Federal Law “On the Federal Budget for 2006,” were equal to 4,445 billion rubles. 4281 billion rubles were fulfilled. Thus, actual execution amounted to 96.31% of the plan. The execution for the main sections and subsections was as follows:
national issues - 530 billion rubles, i.e. 12.38\% of the executed budget;
functioning of the President of the Russian Federation - 6.9 billion rubles, i.e. 0.16\%;
national defense - 682 billion rubles, i.e. 15.93\%;
national security and law enforcement - 550 billion rubles, i.e. 12.85\%;
national economy - 345 billion rubles, i.e. 8.06\%;
housing and communal services - 53 billion rubles, i.e. 1.24\%;
education - 212 billion rubles, i.e. 4.95\%;
Pension provision - 141 billion rubles, i.e. 3.29\%, etc. According to the long-term financial plan approved
The Government of the Russian Federation, federal budget revenues in 2008 will amount to 7112 billion rubles, in 2009 - 7797 billion rubles. Total expenses in 2008 will amount to 6,093 billion rubles, in 2009 - 6,716 billion rubles.
The volume of the stabilization fund at the beginning of 2008 was 4194 billion rubles, at the beginning of 2009 - 5463 billion rubles.
3.3. Government expenditure multiplier.
So, government spending has a direct impact on national production and employment. Like investments, they also have a multiplier effect, giving rise to a chain of secondary, tertiary, etc. consumer spending, and also lead to a multiplier effect on the investments themselves. Government expenditure multiplier shows the increase in GNP as a result of an increase in government spending on the purchase of goods and services:
GNP growth
Increase in government spending
Let's show the essence of this cartoon effect. Let us assume that at a given level of consumption, investment and government spending, the equilibrium state of the macroeconomy is achieved at point E with a GNP volume of 60 billion rubles.
Rice. Government expenditure multiplier
Let the volume of government spending increase by 10 billion rubles, therefore the straight line C + I + G shifts upward by 10 billion rubles. Now the state of macroeconomic equilibrium will be achieved at point E1, at which GNP is already 80 billion rubles. Thus, an increase in government spending by 10 billion rubles. led to an increase in GNP by 20 billion rubles. Based on this, we can say that MPG in this case is equal to 2. In fact, MPG in its model completely coincides with the investment multiplier. And if we assume that MPC = 1/2, then MPG = I / (I-MPC) = 2. where MPC is the marginal propensity to consume. Every ruble spent by the state on the purchase of goods and services increased GNP by 2 rubles, i.e., caused an increase in secondary expenses in the national economy.
Thus, an increase in the volume of government purchases increases the equilibrium level of output. This mechanism of influence of government purchases on output suggests that during a recession, government purchases can be used to increase output. Conversely, during a boom period, the government may reduce its level of spending, thereby reducing the volume of aggregate millet and output.
3.4. The effect of fiscal policy in extreme situations: the liquidity trap and the classic case.
If the economy is in a liquidity trap, in which the LM curve is horizontal, an increase in government spending has a maximum impact on the equilibrium level of income. The interest rate does not change, therefore, there is no inhibitory effect on the growth of government spending on national income.
Rice. Liquid trap
A classic case and the effect of crowding out private investment. First, let's look at what the crowding out effect is. . Displacement effect occurs when, as a result of expansionary fiscal policy, the interest rate rises to such an amount that private spending, especially investment, decreases. If the LM curve runs vertically, then an increase in government spending does not increase the equilibrium level of income, but only increases the interest rate.
A rise in government income shifts the IS curve to position IS" but has no effect on income. If the demand for money is not sensitive to changes in the interest rate (as implied by vertical LM), then there is a single level of income at which the money market is in equilibrium. Thus , an increase in government spending does not change the equilibrium level of income, but only increases the equilibrium interest rate. But if government spending increases and the level of income remains unchanged, then this must be offset by a decrease in personal income. An increase in the interest rate crowds out private investment. Displacement effect, precisely defining the meaning of this term, means a decrease in private spending (especially investment), in accordance with the increase in the interest rate in the event of a fiscal expansion. When the LM curve is vertical, the displacement effect will be maximum. The investment chart shows this. If the positive slope of the curve graph is stronger than the vertical one, the interest rate under the influence of fiscal policy increases slowly, and as a result, investment decreases slightly. The size of the crowding-out effect thus depends on the slope of the LM curve and hence on the percentage dependence of money demand. If the economy is at full employment, then an increase in the goods and services purchased by the government should mean that any other sectors buy fewer goods and services at an amount equal to the highest level of government spending.
In an economy with underutilized resources, the full crowding-out effect cannot be observed. If the fiscal expansion increases the interest rate, then income will also increase. An increase in aggregate demand causes an increase in income, and as income increases, the level of savings increases. This expansion in savings makes it possible to finance budget deficits without completely crowding out private investment.
With underemployment and, therefore, with the possibility of increasing product output, the interest rate may not rise, i.e., there is no crowding out (which is true in the case when monetarist authorities adapt financial expansion to the growth of money supply).
Rice. Classic case
3.5. Balanced budget multiplier.
Taxes and government spending imply each other. Each is an economic lever influencing the growth of the gross national product. But the action of these levers is opposite, so the effects of their simultaneous use can cancel each other out. An increase in taxes suppresses the dynamics of GNP, and an increase in government purchases, creating additional demand, can lead to an increase in the supply of goods, i.e., to an increase in GNP. If the degree of influence of these levers is the same, then the effects of their use will be useless.
For the effective use of taxes and government spending, it is important to accurately determine the strength of the impact of each of them on the dynamics of GNP. To solve this problem, an analysis of the balanced budget multiplier is used, which represents a kind of vector of action of opposing forces - the tax multiplier and the government spending multiplier. Let's compare them with each other to find the balanced budget multiplier. To solve this problem, assume that the amounts of government spending and the amount of taxes collected are equal to each other and amount to 20 units.
If the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) are known, multiplier effects can be determined. Let MPC be equal to 3:4, and MPS - 1:4.
An increase in government spending (G) will cause a chain reaction of growth in aggregate demand and an increase in GNP. In this example, an increase of 20 units will lead to an increase in GNP of 80 units, since the government spending multiplier MG is inversely proportional to the marginal propensity to save (if MPS = -1:4, then Mts = 4).
19.Multipliers of government spending, transfers, taxes and a balanced budget.
Government expenditure multiplier represents the ratio of the change in equilibrium GNP to the change in the volume of government spending.
The government spending multiplier shows the increase in GNP as a result of an increase in government spending per unit: m G =1/(1-MPC) MPC – pre-advancement to consumption.
Tax multiplier- is equal to the ratio of changes in equilibrium output (income) as a result of changes in tax revenues to the budget.
The tax multiplier model in a closed economy with a progressive tax system has the form: m t = -MRS/(1-MRS)
Changes in taxes have less impact on the value of aggregate expenditures, and therefore on the volume of national income, since tax increases are partially offset by a reduction in aggregate expenditures, and partly by a decrease in savings, while changes in government purchases affect only aggregate expenditures. Therefore, the tax multiplier is less than the government spending multiplier.
Balanced Budget Multiplier- an equal increase in government spending and taxes causes an increase in income by an amount equal to the increase in government spending and taxes; a numerical coefficient equal to one.
The transfer multiplier is a coefficient that shows how many times total income increases (decreases) when transfers increase (decrease) by one. In its absolute value, the transfer multiplier is equal to the tax multiplier, but has the opposite sign. The value of the transfer multiplier is less than the value of the expenditure multiplier, since transfers have an indirect effect on total income, and expenditures (consumer, investment and government purchases) have a direct effect.
22. Budget deficit and budget surplus. Types of budget deficit. Financing the budget deficit.
The budget deficit is the excess of government expenditures over revenues. Reasons for budgeting. def-ta: 1. The presence of large programs for the development of the economy 2. The presence of a recession in the economy 3. Wars, natural disasters, militarization of the economy 4. A sharp increase in government. expenses due to inflation 5. Expansion of transport. payments, introduction of tax benefits in pre-election years. Types of budget. def: 1) Structural. The image is, if the government deliberately lays down the excess of expenses over income. 2) Real. That cat. it actually adds up. 3) Cyclic. This is the difference between real and structural. Ways to cover the budget. def: 1 – Increasing tax rates or introducing special taxes. 2 – Debt financing (internal and external). Int. duty. finance is the issue and sale of government. securities for internal market to its business entities and consumers. External is the sale of government. foreign securities to you, their governments, business entities and consumers. 3 – Den. financing (monetization of the budget deficit). There are 2 options: Direct issue of money, Provision of the center. bank loans to the government. 4 – External loans. (from foreign governments and international organizations) 5 – Seigniorage. This is the income of the issuing institution, which was obtained due to the monopoly right to conduct monetary policy, including money. emissions. State expenses, financed through the issue of money, carried out through the appropriation of resources in the private sector, purchases. cat ability decreases in terms of inflation, i.e. we are talking about inflation. tax. Ways to regulate budget deficit: 1st concept: the budget must be balanced annually. Problems arise with the implementation of the FP. 2nd concept: the budget must be balanced during the economic process. cycle, i.e. during recessions, the government deliberately goes to the budget. there is a deficit, and during periods of upswing there is a surplus. 3rd “The Concept of Functional Finance”: Ch. the goal is to ensure balance, and for the budget. Def can be ignored. Fin. The situation of the country is considered normal if the budget. the deficit does not exceed 2-3% of GDP or 8-10% of budget expenditures.
23. Public debt and regulation of public debt State debt is the amount of debts of the country to its own or foreign legal entities. and individuals, governments of other countries and international organizations. It includes the amount of accumulated budget deficits, minus budget surpluses and the amount of financial obligations to creditors. Types of government debt: 1) internal (the amount of government debt to its individuals and legal entities); 2) external (sum of backlogs to foreign individuals and legal entities, foreign governments and international organizations). Consequences of internal government debt: 1 - its growth is dangerous for businesses with low incomes and savings, because Our incomes and living standards are falling very sharply, and the crowding out effect is taking place. Consequences of external government debt: 1 – a decrease in the standard of living in the country; 2 – the lender may require the borrower to fulfill certain obligations. The financial position of a country is considered normal if the government debt does not exceed 50% of GDP. Measures to manage public debt: 1) conversion - changing the profitability of loans towards or ↓; 2) consolidation – change in maturity dates usually towards growth; 3) exchange of bonds according to a regressive ratio, this is significant. several previously issued bonds are exchanged for one new one; 4) deferment of loan repayment, used by law when the issuance of new loans does not bring any effect due to high interest rates on government debt; 5) cancellation of government debt - complete waiver of obligations.
24. Using the modelIS – L.M.for fiscal policy analysis. Effectiveness of fiscal policy Stabilization economic policy uses fiscal and monetary policies as instruments of macroeconomic regulation. Let us consider the effect of fiscal policy in the model IS-L.M..
U s U U 2 U
Let us assume that initially general equilibrium in the goods and money markets was achieved at the point E at interest rate G E and income Y E (Fig. 6.10).model IS-L.M. shows that an increase in government spending causes both an increase in income from Y E to U1, and an increase in the interest rate from G E before T\, At the same time, income increases to a lesser extent than expected, since an increase in the interest rate reduces the multiplier effect of government spending: their increase (as well as an increase in other autonomous expenses, tax cuts) partially crowds out planned private investment and consumer spending, i.e. a displacement effect is observed. In the figure, it is equal to Y 2 - Y]. Private spending declines as a result of rising interest rates driven by rising real income, which in turn is driven by expansionary fiscal policy.
The effect of fiscal policy will put the following points: - helps to avoid economic shocks - smoothing out the economic cycle - reducing differences in society - increasing the volume of production due to the growth of AS and AD Let's say the government increases government purchases and reduces taxes. This will lead to 2 consequences: - AD and production volume will increase; - through a reduction in taxes, the AS curve will shift. As a result, the volume of production will increase from Y1 to Y3 Problems of implementing fiscal policy: - it is characterized by long time lags: Internal (from awareness of the beginning of the recession to the need to make decisions; from decision-making to the actions themselves) External (from taking measures to -in the economy) -it is difficult to calculate the impact of fiscal policy parameters on public spending and production volume -crowding out effect (government spending crowds out private spending) 2 reasons for counteracting this effect: 1) Fiscal policy stimulates growth in business activity, private investors can increase their investments even if the interest rate rises 2) When analyzing the crowding out effect, they start from savings, but in the case of fiscal policy, income and savings increase - the problem of implementing an autonomous fiscal policy (when the economy comes out of recession, the autonomous fiscal -th policy slows down the economy) -has an impact on the political-economic cycle -to assess the reserves of the fiscal policy, a full employment budget is used, but it cannot always assess the economic situation of the BNP in the Republic of Belarus: Aimed at stimulating economic growth and structural restructuring in the economy. Directions for its implementation:1) Improving the tax structure by increasing the share of direct taxation2) Reducing the tax burden on the salary fund3) Reducing the tax burden on the economy4) Increasing the stimulating role of customs policy5) Equalizing tax conditions for all categories of payers.
The effectiveness of fiscal policy and economy in the Republic of Belarus.
Fiscal policy is considered eff-noy. ensures the most complete receipt of taxes into the budget, with the lowest costs for their collection. To determine the efficiency, various indicators are used:
Level or tax rate. We must always compare it with the GDP growth rate. = ∑cash receipts/GDP.
- marginal cash rate= ∆income/∆GDP
- tax multiplier, i.e. separation between MPC and MPS (MPC/MPS), (for Belarus – 3.8)
- load level by industry sector.
In the Republic of Belarus, the fiscal system, focused on functioning in market conditions, is going through a stage of formation.
Since 1992, the taxation system in Belarus has been in a state of constant reform, which is reflected in the testing of types of taxes, their rates, tax benefits, determining the structure of republican and local taxes, clarifying their functional role, etc.
The budgetary and tax policy of the Republic of Belarus for 11-15 years has the following directions:
radical simplification of tax administration and control procedures, strengthening the country’s position in world rankings;
optimizing budget expenditures and increasing the efficiency of using budget funds;
concentration of budget funds on priority areas of socio-economic development of the country;
increasing the efficiency of public debt management.
reducing the tax burden on profits and payroll of organizations;
improving the efficiency of public financial management;