Fiscal (pronounced fis-kuh l)
(1)
Off or relating to the
public treasury or revenues.
(2)
In casual use, of or
relating to financial matters in general.
(3)
A prosecuting attorney
in Scotland, a contraction of procurator fiscal.
(4)
In philately, a revenue
stamp (a postage or other stamp signifying payment of a tax
(5)
In some countries, a
public official having control of public revenue.
(6)
In some civil law or
common-civil hybrids (including Spain, Portugal, the Netherlands, and former
colonies of these countries and certain British colonies), the solicitor or
attorney-general
1560s: From the Middle French fscal, from the Classical Latin fiscus
(public money) and fiscālis (of the state treasury). The Latin is of unknown etymology and
suggestions are speculative: a connection with findō (I cleave) or a
link to the rhyme with rarer riscus, a likely Celtic borrowing into
Latin and Ancient Greek. Most convincing
is fidēlia (earthen pot, sometime translated as a purse or basket made
of twigs in which money was kept). The
general sense of "financial" entered US English in 1865 and was
abstracted from phrases like fiscal calendar and fiscal year.
Fiscal Drag
Also known as "bracket creep", fiscal
drag is the tendency of revenue from taxation to rise as a share of GDP in a
growing economy. Tax allowances,
progressive tax rates and the threshold above which a particular rate of tax
applies usually remain constant or are changed only gradually. By contrast, as an economy grows, income,
spending and corporate profits should rise, the tax-take therefore increasing
without any need for government action. This helps slow the rate of increase in
demand, reducing the pace of growth, making less likely higher inflation; fiscal drag is thus an automatic stabilizer as it acts "naturally" to keep demand
stable. Economists did much work to adjust
their models to reflect the post-GFC (Global Financial Crisis, 2008-2012) economy in which, while aggregate growth
continued, the gains have tended to be concentrated in the hands of the rich
with the incomes of most falling or stagnating in real-terms. The historically peculiar effect the COVID-19
pandemic seems to have exacerbated these trends in fiscal outcomes, the most
interesting of which has been the behavior of inflation now the allocation of
the money supply is so distorted.
Although it’s misleading to compare inflationary numbers with those of the 1970s & 1980s because the math of the calculation is now so different (and some of the changes did make sense), there’s no doubt the novel phenomenon of low inflation in the low-end of the economy and high inflation in the more rarefied air, is a product of very unusual circumstances, a succession of jolts and shocks, from the "Greenspan put" of the early 2000s, through the GFC, to the pandemic. For two decades, the jolts and shocks have been buffered by seemingly limitless free money, now able to be distributed in a way which avoids general inflationary pressures while simultaneously driving up asset prices in objects as diverse as old masters and vintage Ferraris. Economists are divided, both on whether this model can indefinitely continue and whether it’s a good idea, either in concept or its current specifics although all seem to concur it shouldn’t suddenly be stopped. It’s not just the US Federal Reserve’s discount window which has been wide-open, the quantitatively-eased largess has been popular with many central banks so when adjustments to policy are made, there will be consequences.
Fiscal Neutrality
Fiscal neutrality is a term to
describe the net effect of taxation and public spending being neutral, neither
stimulating nor dampening demand. The term can be used to describe the overall
stance of fiscal policy: a balanced budget is neutral, as total tax revenue
equals total public spending. It can
also refer more narrowly to the combined impact of new measures introduced in an
annual budget: the budget can be fiscally neutral if any new taxes equal any
new spending, even if the overall stance of the budget either boosts or slows
demand.
Fiscal policy
A nation’s fiscal policy is one of the two instruments of macroeconomic policy, the other being monetary policy. It comprises public spending and taxation, and any other government income or assistance to the private sector (such as tax breaks). It can be used to influence the level of demand in the economy, historically with the twin goals of maintaining low unemployment without triggering excessive inflation. It can be deployed to manage short-term demand through fine tuning, although, since the beginning of the neo-liberal era in the 1980s, it has more often been targeted on long-term goals, with monetary policy preferred for shorter-term adjustments. Disputes do exist, among both economists and politicians. Some argue for a balanced budget as a structural end in itself while others suggest persistent deficits (public spending exceeding revenue) are acceptable provided, the deficit is used for investment in infrastructure or something useful rather than consumption. However, even most deficit hawks concede fiscal policy should be counter-cyclical, aiming to automatically stabilize demand by increasing public spending relative to revenue when the economy is struggling and increasing taxes relative to spending towards the top of the cycle.
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