Investopedia

Fiscal Drag

Filed Under » ,
Dictionary Says

Definition of 'Fiscal Drag '

Fiscal drag is an economics term referring to a situation where a government's net fiscal position (equal to its spending less any taxation) does not meet the net savings goals of the private economy. This can result in deflationary pressure attributed to either lack of state spending or to excess taxation.

One cause of fiscal drag is the consequence of expanding economies with progressive taxation. In general, individuals are forced into higher tax brackets as their income rises. The greater tax burden can lead to less consumer spending. For the individuals pushed into a higher tax bracket, the proportion of income as tax has increased, resulting in fiscal drag.

Investopedia Says

Investopedia explains 'Fiscal Drag '

Fiscal drag is essential a drag or damper on the economy caused by lack of spending or excessive taxation. As increased taxation slows the demand for goods and services, fiscal drag results. Fiscal drag is a natural economic stabilizer, however, since it tends to keep demand stable and the economy from overheating.

Because it is an economic stabilizer, fiscal drag can influence economic equality among citizens of the same region.

Articles Of Interest

  1. Do Tax Cuts Stimulate The Economy?

    Learn the logic behind the belief that reducing government income benefits everyone.
  2. A Concise History Of Changes In U.S. Tax Law

    We look at how U.S. taxes have changed since their inception.
  3. The History Of Taxes In The U.S.

    The number of taxes that we now consider a given did not always exist. Find out how they arose.
  4. Why The Consumer Price Index Is Controversial

    Find out why economists are torn about how to calculate inflation.
  5. Predict Inflation With The Producer Price Index

    Find out how the PPI can be used to gauge the overall health of the economy.
  6. Leading Economic Indicators Predict Market Trends

    Leading indicators help investors to predict and react to where the market is headed.
  7. Austerity: When The Government Tightens Its Belt

    When a government tightens its belt in tough economic times the entire nation feels the squeeze.
  8. Will Quantitative Easing Be Japan's Savior?

    The quantitative easing program, recently announced by the new governor of the Bank of Japan, Haruhiko Kuroda, is for a cash infusion of $1.4 trillion by the end of 2014. Will it help the Japanese ...
  9. Inspecting A Country's Debt

    Tensions over just how to handle debt are pitting the rich world against the developing world like never before.
  10. All The Cliffs You Need To Know About

    In addition to the oft-cited fiscal cliff, there are economic, tax, political, geopolitical and earnings pitfalls to avoid.
comments powered by Disqus
Marketplace
Hot Definitions
  1. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.
  2. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.
  3. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.
  4. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.
  5. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.
  6. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.
Trading Center