Fiscal Capacity

DEFINITION of 'Fiscal Capacity'

In economics, the ability of groups, institutions, etc. to generate revenue. The fiscal capacity of governments depends on a variety of factors including industrial capacity, natural resource wealth and personal incomes.

BREAKING DOWN 'Fiscal Capacity'

When governments develop their fiscal policy, determining fiscal capacity is an important step. Identifying fiscal capacity gives governments a good idea of the different programs and services that they will be able to provide to their citizens. It also helps governments determine the tax rate necessary to provide a certain level of programs. The theory behind fiscal capacity can also be used by other groups, such as school districts, who need to determine what they will be able to provide to their students.

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    Finding the optimal time period to end expansionary economic policy is an urgent issue; the key is found with capacity utilization. Read Answer >>
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  4. What are some examples of expansionary fiscal policy?

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  5. What's the difference between monetary policy and fiscal policy?

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