Investment sources include:
·Borrowing from foreigners
Capital markets are influenced by fiscal policy in two ways:
·Government spending and tax policy will generate either a budget surplus or a deficit, which will in turn mean that the government sector will either contribute towards financing investment or "crowd out" private investment.
·Tax policy will affect the amount saved. Taxes on interest earned will decrease the incentive to save and create a wedge between the after-tax interest earned by savers and the interest rate paid by firms.
Generational Effects of Fiscal Policy
Current fiscal policy impacts the amount of taxes that future citizens will pay. If the government runs up long-term budget deficits, then future generations will need to pay higher taxes in order to pay the interest. Similarly, future generations will pay lower taxes if the government creates budget surpluses. Economists have created systems which examine the lifetime taxes and benefits associated with generations or age groups. Those systems are referred to as generational accounting.
A government that chronically runs deficits will, at some point in time, have to address that imbalance. This fiscal imbalance will need to be addressed with higher tax revenues and/or reduced government spending.An imbalance is also created when the government benefits received by one generation exceed the taxes paid by that generation. For example, initial recipients of Social Security in the
The Multiplier Effect
InsightsLearn how governments adjust taxes and spending to moderate the economy.
InvestingA shortfall that occurs when government spending exceeds government revenues, or taxes.
TaxesAmerican's are highly taxed and we still run a deficit. We explain why.
InsightsThere's a debate over which policy is better for the economy. Find out which side of the fence you're on.
TradingFiscal and monetary policies provide our government and the Federal Reserve with two powerful tools to regulate the economy.
InsightsWhen it comes to influencing macroeconomic outcomes, governments have typically relied on one of two primary courses of action: monetary policy and fiscal policy.
Personal FinanceFiscal Policy is the combined governmental decisions regarding its taxing and spending.
Personal FinanceBudget surplus is an economic term describing a situation where revenue exceeds expenditures.
InsightsIt’s an important consideration for determining taxes, expenses and other financial matters.