Unit 2 Macro: Fiscal Policy Glossary

A selection of economic terms linked to government fiscal policy

AAA credit rating
The best credit rating that can be given to a corporation’s or government’s bonds, effectively indicating that the risk of default is negligible

Bond
Both companies and governments can issue bonds when they need to borrow money

Bond yield
The rate of interest market investors demand when purchasing government bonds

Budget deficit
When government spending > tax revenues. This leads to a rise in the level of debt

Data from Timetric.

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United Kingdom from Timetric

Corporation Tax
A tax on the profits made by companies

Debt burden
The amount of debt that a business or country has expressed as a share of GDP

Debt deflation
High levels of debt leading to falling asset prices which makes debt harder to repay

Discretionary fiscal policy
Deliberate attempts to affect aggregate demand using changes in government spending, direct and indirect taxation and borrowing.

Discretionary income
Disposable income adjusted for spending on essential bills such as fuel

Disposable income
Income after the effects of direct taxes and welfare benefits have been calculated

Fiscal austerity
When government spending is being cut and/or taxation is being raised

Fiscal stimulus
Increased public spending and lower taxation, aimed at boosting economic activity

Gilts
Another word for government bonds

Government debt
The debt issued by a national government for example by the sale of bonds

Data from Timetric.

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United Kingdom from Timetric

Keynesian economics
The belief that the state can directly stimulate demand in a stagnating economy. For instance, by borrowing money for projects like roads, schools and hospitals.

Policy credibility
Credibility means that economic agents such as businesses and consumers believe that a given policy is appropriate for a given economic situation and is likely to achieve the objectives or targets that have been set out. Credibility is widely assumed to be important in financial markets and can affect the cost of borrowing for governments in the capital markets and the value of a currency in the foreign exchange markets.

Progressive tax
A tax that takes an increasing proportion of income as income rises

Regressive tax
A tax that takes a smaller proportion of income as the taxpayer’s income rises

Sovereign debt
Debt issued by or guaranteed by a government

Tobin Tax
Also known as a financial transactions tax, the tax involves applying a small charge – of as little or less than 0.1 per cent – on foreign currency transactions to protect countries from exchange-rate volatility caused by short-term currency speculation