Fiscal Neutrality

DEFINITION of 'Fiscal Neutrality '

Fiscal neutrality occurs when taxes and government spending are neutral, with neither having an effect on demand. Fiscal neutrality creates a condition where demand is neither stimulated nor diminished by taxation and government spending.

BREAKING DOWN 'Fiscal Neutrality '

A balanced budget is an example of fiscal neutrality, where government spending is covered almost exactly by tax revenue – in other words, where tax revenue is equal to government spending.
A situation where spending exceeds the revenue generated from taxes is called a fiscal deficit and requires the government to borrow money to cover the shortfall. When tax revenues exceed spending, a fiscal surplus results, and the excess money can be invested for future use.

RELATED TERMS
  1. Fiscal Policy

    Government spending policies that influence macroeconomic conditions. ...
  2. Fiscal Drag

    Fiscal drag is an economics term referring to a situation where ...
  3. Fiscal Multiplier

    The ratio in which the change in a nation's income level is affected ...
  4. Fiscal Effort

    The amount of revenue collected by a government, often shown ...
  5. Deficit Spending

    When a government's expenditures exceed its revenues, causing ...
  6. Fiscal Year - FY

    A period that a company or government uses for accounting purposes ...
Related Articles
  1. Markets

    Fiscal Deficit

    A shortfall that occurs when government spending exceeds government revenues, or taxes.
  2. Markets

    What Is Fiscal Policy?

    Learn how governments adjust taxes and spending to moderate the economy.
  3. Markets

    What is the Fiscal Year-End?

    It’s an important consideration for determining taxes, expenses and other financial matters.
  4. Markets

    Macroeconomics: Government - Expenditures, Taxes and Debt

    By Stephen Simpson ExternalitiesIn a market economy there are important differences between public and private goods. Private goods are considered "rival and excludable" - one person consuming ...
  5. Investing

    Explaining the Fiscal Year

    Fiscal year is a term most often used in accounting and budgeting to denote the beginning and ending dates for one year of business activity.
  6. Markets

    Fiscal Policy

    Fiscal Policy is the combined governmental decisions regarding its taxing and spending.
  7. Markets

    The Top 6 Ways Governments Fight Deflation

    Here are six monetary and fiscal policy tools that governments use to fight deflation.
  8. Markets

    A Look At Fiscal And Monetary Policy

    There's a debate over which policy is better for the economy. Find out which side of the fence you're on.
  9. Markets

    A Look At Fiscal And Monetary Policy

    Fiscal and monetary policies provide our government and the Federal Reserve with two powerful tools to regulate the economy.
  10. Markets

    Fiscal Vs. Monetary Policy Pros & Cons

    When it comes to influencing macroeconomic outcomes, governments have typically relied on one of two primary courses of action: monetary policy and fiscal policy.
RELATED FAQS
  1. What is the role of deficit spending in fiscal policy?

    Read about the role deficit spending can play in a government's fiscal policy, and learn why economists are torn about the ... Read Answer >>
  2. What's the difference between monetary policy and fiscal policy?

    Learn how monetary policy refers to bank actions to control interest rates and money supply, while fiscal policy refers to ... Read Answer >>
  3. What are some examples of expansionary fiscal policy?

    Learn about expansionary fiscal policy – tax cuts and government spending – that are used by governments to boost spending ... Read Answer >>
  4. How can a change in fiscal policy have a multiplier effect on the economy?

    Learn about how changes in fiscal policy have a multiplier effect on the economy. The goal of expansionary fiscal policy ... Read Answer >>
  5. How successful is fiscal policy in guiding the national economy?

    See why it is difficult to evaluate the impact of fiscal policy on the national economy and how fiscal tools have failed ... Read Answer >>
  6. Who sets fiscal policy, the president or congress?

    Discover how fiscal policy is set in the United States, including how all three branches of government can affect a given ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center