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. Deficit Spending

    When a government's expenditures exceed its revenues, causing ...
  4. Fiscal Multiplier

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

    The amount of revenue collected by a government, often shown ...
  6. Fiscal Capacity

    In economics, the ability of groups, institutions, etc. to generate ...
Related Articles
  1. Economics

    Fiscal Deficit

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

    What Is Fiscal Policy?

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

    Fiscal Policy

    FINRA Series 6 Exam Study Guide - Fiscal Policy. This section deals with fiscal policy and its tools to manage economic activity.
  4. Economics

    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

    What is the Fiscal Year-End?

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

    Discretionary Fiscal Policy and Automatic Stabilizers

    CFA Level 1 - Discretionary Fiscal Policy and Automatic Stabilizers
  7. Professionals

    Fiscal Policy Basics

    CFA Level 1 - Fiscal Policy Basics
  8. Economics

    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.
  9. Economics

    Fiscal Policy

    Fiscal Policy is the combined governmental decisions regarding its taxing and spending.
  10. Professionals

    Effects of Fiscal Policy

    CFA Level 1 - Effects of 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. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center