Fiscal Neutrality

AAA

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.

INVESTOPEDIA EXPLAINS '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. Taxation

    Taxation refers to the act of a taxing authority actually levying ...
  2. Economics

    A social science that studies how individuals, governments, firms ...
  3. Macroeconomics

    The field of economics that studies the behavior of the aggregate ...
  4. Microeconomics

    The branch of economics that analyzes the market behavior of ...
  5. Government Purchases

    Expenditures made in the private sector by all levels of government, ...
  6. Premium to Surplus Ratio

    Net premiums written divided by policyholders’ surplus. The premium ...
Related Articles
  1. thinkstock|istock
    Economics

    What Is Fiscal Policy?

    Learn how governments adjust taxes and spending to moderate the economy.
  2. As the national debt per capita increases, the likelihood of the government defaulting on its debt service obligation increases.
    Economics

    What The National Debt Means To You

    The U.S. deficit seems to grow every year. But how does it actually affect you?
  3. Economics

    Debt Monetization: A Nearsighted Government Policy?

    We look at whether this financial practice benefits a government in the long term.
  4. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  5. Investigate these expat havens if you seek a developed country with low barriers for getting a permanent resident visa – sometimes even citizenship.
    Personal Finance

    5 Developed Countries That Welcome Expats

    Investigate these expat havens if you seek a developed country with low barriers for getting a permanent resident visa – sometimes even citizenship.
  6. Free enterprise is the economic term used to describe an economy with very little government ownership.
    Economics

    What's Free Enterprise?

    Free enterprise is the economic term used to describe an economy with very little government ownership or regulation. In a free enterprise system, competition and the preferences and choices ...
  7. Some countries put up very high barriers for foreigners to get citizenship
    Personal Finance

    5 Countries Where It's Hardest To Become A Citizen

    The United States is one of five countries that put up very high barriers for foreigners to get citizenship. Here's how it compares to the other four.
  8. There are many ways to rank the word's most powerful companies. Looking at market value, brand value or sales revenue are all methods used to rank the biggest companies in the world.
    Economics

    Most Powerful And Influential Public Companies In 3 Metrics

    There are many ways to rank the word's most powerful companies. Looking at market value, brand value or sales revenue are all methods used to rank the biggest companies in the world.
  9. Depending on their parents, people not born in the U.S. either inherit U.S. citizenship or need to achieve it. Here are the steps to become an American.
    Personal Finance

    How To Become A U.S. Citizen

    Depending on their parents, people not born in the U.S. either inherit U.S. citizenship or need to achieve it. Here are the steps to become an American.
  10. A look at China's plan to control population growth and how it could change going forward.
    Economics

    China's One-Child Policy Explained

    A look at China's plan to control population growth and how it could change going forward.

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center