Chapter-11.docx

CHAPTER 11: FISCAL POLICY Prepared by Delos Santos, Jenaia Rozel F.

Bachelor of Science in Accountancy- 1st Year

What is Fiscal Policy? -

The means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy. Fiscal measures are frequently used in tandem with monetary policy to achieve certain goals.

National Budget - It is the money or public fund utilized by government in all its activities, projects and operations. Sources and Uses of Public Funds  Tax - compulsory monetary contribution to the state's revenue, assessed and imposed by a government. Collected by Bureau of Internal Revenue.  Types of Taxes: i. Income Tax vi. Value Added Tax ii. Excise Tax vii. Residence Tax iii. Inheritance Tax viii. Other Tax iv. Percentage Tax ix. Expanded-VAT v. Miscellaneous Tax x. Entertainment Tax 

Taxes Collected by government: i. Direct Taxes- levied on people and are paid directly to a tax collecting agency of the government. ii. Indirect Taxes- levied against goods and services indirectly on people.

 Non-tax revenues - is the recurring income earned by the government from sources other than taxes.  Examples: i. Money which the Government earns as “Dividends and profits” ii. Interest which the Government earns on the money lent by it to external or internal borrowers. iii. Money which the government accrues as fees, fines, penalties etc. iv. The money which the government receives out of its fiscal services.

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CHAPTER 11: FISCAL POLICY Prepared by Delos Santos, Jenaia Rozel F.

Bachelor of Science in Accountancy- 1st Year

Taxation: A tool - means by which governments finance their expenditure by imposing charges on citizens and corporate entities Systems by which government may impose Taxes  Progressive Tax System – the tax rate tends to increase with an increase in the tax base.  Regressive Tax System – taxes are high for low bases, and decrease with high bases.  Proportional Tax System – imposes a uniform tax rate on all income level. Burden of Taxation  Impact of the Tax – is the burden of the person who pays the tax initially.  Incidence of the Tax – is the burden of the person who ultimately has to pay for the tax. Spending, Debt and Financing  Why do governments borrow money? Governments regularly run a deficit when the money they take from their citizen in the form of tax is less than the money they spend. In that case they have three options: 1. Increase taxes 2. Decrease expenditure 3. Borrow the money from more-than-willing-to-lend investors  From internal sources such as Central Bank  External sources such as foreign governments TYPES OF FISCAL POLICY 1. Expansionary fiscal policy - occurs when the Congress acts to cut tax rates or increase government spending, shifting the aggregate demand curve to the right. 2. Contractionary fiscal policy - occurs when Congress raises tax rates or cuts government spending, shifting aggregate demand to the left.

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CHAPTER 11: FISCAL POLICY Bachelor of Science in Accountancy- 1st Year

Prepared by Delos Santos, Jenaia Rozel F.

Name: I.

Course/Year:

Date:

Score:

True or False. Write FALSE if the statement is correct. If not, write the word that makes the statement wrong. STRICTLY NO ERASURES.

____________________1. A direct tax is paid straight by an individual or organization to the imposing entity. ____________________2. Fiscal Policy may be used by the government to stimulate or depress the economy. ____________________3. Fiscal Policy is the government’s efforts to keep the economy stable by increasing or decreasing taxes or government spending. ____________________4. Taxation refers to the pattern of income received by different sectors in the economy. ____________________5. When government are insufficient to finance the contracting budget, the government has to resort to borrowing. ____________________6. Deficit and balanced budget have an expansionary effect. ____________________7. Progressive tax system is a tax whose average tax rate increases as the taxpayer's income increases and decreases as the tax payer's income decreases. ____________________8. Government can borrow money from external sources such as Central Banks. ____________________9. Regressive Tax System is when marginal tax rate increases as level of income increases. ____________________10. Income tax is an example of indirect tax. II. Identification. ____________________1. Measures employed by government specifically by manipulating the levels and allocations of taxes and government expenditures. ____________________2. Is a tax on a person's income, wages, profits arising from property, practice of profession, conduct of trade or business. ____________________3. Is a term for the act of levying or imposing a tax by a taxing authority. ____________________4. Is a macroeconomic concept that seeks to encourage economic growth by increasing the money supply. ____________________5. It is the internal source where the government can borrow money. ____________________6. It is the proposal of revenues and expenditures a government expects for a given fiscal year. ____________________7. Is a tax on goods and services which is added to their price. ____________________8. Its main goal is to close an inflationary gap, restrain the economy, and decrease the inflation rate. ____________________9. Is a tax system that takes a greater percentage of income from those who earn less, than from those with a higher income. ____________________10. It is the sister strategy to Monetary Policy.

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CHAPTER 11: FISCAL POLICY Prepared by Delos Santos, Jenaia Rozel F.

Bachelor of Science in Accountancy- 1st Year

ANSWER KEY: III.

True or False. Write FALSE if the statement is correct. If not, write the word that makes the statement wrong. STRICTLY NO ERASURES.

_______FALSE________1. A direct tax is paid straight by an individual or organization to the imposing entity. _______FALSE________2. Fiscal Policy may be used by the government to stimulate or depress the economy. _______FALSE________3. Fiscal Policy is the government’s efforts to keep the economy stable by increasing or decreasing taxes or government spending. _____TAXATION______ 4. Taxation refers to the pattern of income received by different sectors in the economy. ____CONRACTING_____5. When government are insufficient to finance the contracting budget, the government has to resort to borrowing. _______FALSE________6. Deficit and balanced budget have an expansionary effect. _______FALSE________7. Progressive tax system is a tax whose average tax rate increases as the taxpayer's income increases and decreases as the tax payer's income decreases. ______EXTERNAL_____ 8. Government can borrow money from external sources such as Central Banks. ______INCREASES_____9. Regressive Tax System is when marginal tax rate increases as level of income increases. ______INDIRECT______10. Income tax is an example of indirect tax. IV. Identification. ____FISCAL POLICY____ 1. Measures employed by government specifically by manipulating the levels and allocations of taxes and government expenditures. _____INCOME TAX____ 2. Is a tax on a person's income, wages, profits arising from property, practice of profession, conduct of trade or business. ______TAXATION_____ 3. Is a term for the act of levying or imposing a tax by a taxing authority. EXPANSIONARY FISCAL POLICY 4. Is a macroeconomic concept that seeks to encourage economic growth by increasing the money supply. ____CENTRAL BANK ___5. It is the internal source where the government can borrow money. __NATIONAL BUDGET__6. It is the proposal of revenues and expenditures a government expects for a given fiscal year. _____INDIRECT TAX_ _ 7. Is a tax on goods and services which is added to their price. __CONTRACTIONARY__ 8. Its main goal is to close an inflationary gap, restrain the economy, and decrease the inflation rate. REGRESSIVE TAX SYSTEM_9. Is a tax system that takes a greater percentage of income from those who earn less, than from those with a higher income. ____FISCAL POLICY____ 10. It is the sister strategy to Monetary Policy.

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