Fiscal

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: An English borrowing from the Middle French Fiscal, derived 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. Thus fiscal drag is an automatic stabilizer, as it acts naturally to keep demand stable.  Economists did much work to adjust their models to reflect the post-GFC 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.

Salvator Mundi (Savior of the World, circa 1507), attributed in whole or in part to Leonardo da Vinci (1452–1519) sold at auction in 2017 US$450.3 million.  A 1967 Ferrari 275 GTB/4 Spider (NART) by Scaglietti sold at auction in 2013 for US$27,500,000.  It may yet prove a bargain.  In 2018, a 1962 Ferrari 250 GTO sold for $US48.4 million, a handy increase on the previous auction record of US$38.1 million paid for a 1963 250 GTO a year earlier and an even more impressive jump from its US$7 million sale in 2000.  Setting the record for the most expensive car ever sold was a privately-traded 250 GTO which in 2018 brought US$70 million.

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.