government spending multiplier. State and economy Government spending formula
19. Multipliers of government spending, transfers, taxes and a balanced budget.
Government Spending Multiplier is the ratio of the change in equilibrium GNP to the change in government spending.
The government spending multiplier shows the increase in GNP as a result of an increase in government spending per unit: m G =1/(1-MPC) MPC - pred.
tax multiplier- is equal to the ratio of changes in equilibrium output (income) as a result of changes in tax revenues to the budget.
The model of the tax multiplier in a closed economy with a progressive taxation system has the form: m t = -MPC/(1-MPC)
Changes in taxes have less of an impact on total spending, and hence on national income, because tax increases are partly offset by a reduction in total spending and partly by a decrease in savings, while changes in government purchases affect only total spending. Therefore, the tax multiplier is less than the government spending multiplier.
Balanced budget multiplier- an equal increase in government spending and taxes causes an increase in income by an amount equal to the increase in government spending and taxes; numerical coefficient equal to one.
The transfer multiplier is a coefficient that shows how many times the total income increases (decreases) with an increase (decrease) in transfers per unit. In its absolute value, the transfer multiplier is equal to the tax multiplier, but has the opposite sign. The value of the multiplier of transfers is less than the value of the multiplier of expenditures, since transfers have an indirect impact on total income, while expenditures (consumer, investment and government purchases) have a direct effect.
22. Budget deficit and budget surplus. Types of budget deficit. Financing the budget deficit.
A budget deficit is an excess of state spending over income. Reasons for the budget def-ta: 1. The presence of large programs for the development of eq-ki 2. The presence of a recession in eq-ke 3. Wars, natural disasters, militarization of eq-ki 4. A sharp increase in state. expenses due to inflation 5. Expansion of transfer. payments, the introduction of tax incentives in the pre-election years. Types of budget def-ta: 1) Structural. Image-Xia, if the law-in deliberately lays the excess of costs over income. 2) Real. The one cat. really builds up. 3) Cyclic. This is the difference m / y real and structural. Ways to cover the budget. def-ta: 1 - Increasing tax rates or introducing special taxes. 2 - Debt financing (internal and external). Int. duty. fin-ie is the issue and sale of state. securities on ext. the market to their subjects hoz-Iya and consumers. External is the sale of state. foreign securities. state-you, their governments, business entities and consumers. 3 - Den. financing (monetization of the budget deficit). There are 2 options: Direct issue of money, Provision of the center. bank loan funds to the government. 4 - External loans. (from foreign governments and international organizations) 5 - Seigniorage. These are the incomes of the issuing institution, which are received at the expense of the monopoly right to conduct monetary policy, including money. emissions. State. expenses cat finance-Xia through the issue of money, implemented-Xia through the appropriation of res-in the private sector, will buy. cat ability. decreases in the conditions of inflation, that is, we are talking about inflation. tax. Ways to regulate the budget deficit: 1st concept: the budget should be balanced annually. There are problems with the implementation of the OP. 2nd concept: the budget must be balanced in the course of eq. cycle, i.e., during recessions, rights go consciously to the budget. def-t, and during periods of upswing, the image is a surplus. 3rd "The concept of functional finance": Ch. the goal is to ensure balance, and on the budget. def-t can be ignored. Fin. the state of the country is considered normal if the budget. def-t does not exceed 2-3% of GDP or 8-10% of the expenditure side of the budget.
23. Public debt and regulation of public debt State debt - the amount of the country's debts to its own or foreign legal entities. and individuals, governments of other countries and international organizations. It includes the amount of accumulated budget deficits, minus budget surpluses and the amount of financial obligations to creditors. Types of state debt: 1) internal (the amount of state debts to its individuals and legal entities); 2) external (the sum of the backs of foreign individuals and legal entities, foreign governments and international organizations). Consequences of domestic public debt: 1 - its growth is dangerous for eq-ki with low incomes and savings, because our incomes and living standards are falling very sharply, and the effect of crowding out is real. Consequences of external public debt: 1 - a decrease in the standard of living in the country; 2 - the lender may require the borrower to fulfill certain obligations. The financial situation of the country is considered normal if the state debt does not exceed 50% of GDP. Measures to manage public debt: 1) conversion - change in the yield of loans in the direction or ↓; 2) consolidation - changes in maturities, usually in the direction of growth; 3) the exchange of bonds according to the regressive ratio, this is zn. several previously issued bonds are exchanged for one new one; 4) deferral of loan repayment, using the law when the issuance of new loans does not bring effect due to large percentages of public debt; 5) cancellation of state debt - a complete waiver of obligations.
24. Using the ModelIS – LMfor fiscal policy analysis. Effectiveness of fiscal policy Stabilization economic policy uses fiscal and monetary policy as instruments of macroeconomic regulation. Consider the action of fiscal policy in the model IS-LM.
Y c Y Y 2 Y
Suppose that initially the general equilibrium in the markets for goods and money was reached at the point E at an interest rate G E and income Y E (Fig. 6.10).model IS-LM shows that an increase in government spending causes both an increase in income with Y E to Y1, and an increase in the interest rate from G E before T\, At the same time, income increases to a lesser extent than expected, since an increase in the interest rate reduces the multiplier effect of government spending: their growth (as well as an increase in other autonomous spending, tax cuts) partially crowds out planned private investment and consumer spending, i.e. displacement effect is observed. In Fig .. it is Y 2 - Y]. Private spending is declining due to the increase in the interest rate, caused by the growth in real income, which, in turn, is due to the implementation of an expansionary fiscal policy.
The effect of fiscal policy will put the points: -helps to avoid ex-shocks-smoothing the ex-th cycle-reducing dif-ii in society-increase the volume of production through the growth of AS and AD Let's say the state increases government purchases and reduces taxes. This will lead to 2 consequences: - AD and output will increase - through lowering taxes, the AS curve will shift. As a result, the volume of production will increase from Y1 to Y3. Problems in the implementation of fiscal policy: - it is characterized by long time lags: - in the economy) - it is difficult to calculate the impact of fiscal policy parameters on spending and output - crowding out effect (government spending crowds out private ones) 2 reasons to counteract this effect: 1) Stimulating fiscal policy leads to an increase in business activity, private investors can increase their investments even in the event of an increase in the interest rate 2) When analyzing the crowding out effect, they start from savings, however, in the case of fiscal policy, income and savings grow - the problem of implementing an autonomous fiscal policy -th policy slows down the e-ku) -has an impact on the political and economic cycle -to assess the reserves of fiscal policy, use the full employment budget, but it is not always m can assess the economic situation of the BNP in the Republic of Belarus: Aimed at stimulating economic growth and restructuring in the economy. Directions for its implementation 1) Improving the tax structure by increasing the share of direct taxation 2) Reducing the tax burden on the payroll fund 3) Reducing the tax burden on the economy 4) Increasing the stimulating role of customs policy 5) Equalizing taxation conditions for all categories of payers.
Efficiency of fiscal policy and os-sti in the Republic of Belarus.
Eff-noy is considered to be that fiscal policy, the cat. provides the most complete receipt of taxes to the budget, at the lowest cost of their collection. To determine the efficiency, various indicators are used:
Level or tax rate. It should always be compared with the GDP growth rate. = ∑cash receipts/GDP.
- marginal cash rate= ∆income/∆GDP
- tax multiplier, i.e. separation between MPC and MPS (MPC / MPS), (for RB - 3.8)
- cash load level by business sectors.
In the Republic of Belarus, the budget-tax system, oriented to functioning in market conditions, is going through the stage of formation.
Since 1992, the taxation system in Belarus has been in a state of constant reform, which is expressed in testing the types of taxes, their rates, tax benefits, determining the structure of republican and local taxes, clarifying their functional role, etc.
The fiscal policy of the Republic of Belarus for 11-15 years has the following directions:
radical simplification of tax administration and control procedures, strengthening the country's position in world rankings;
optimization of budget expenditures and increasing the efficiency of the use of budget funds;
concentration of budget funds in priority areas of the country's socio-economic development;
improving the efficiency of public debt management.
reducing the tax burden on profits and wages of organizations;
improving the efficiency of public finance management;
Please do not be late, behave decently, do not talk, answer - get up, be active in the answers. Do not put bags, bottles on the desks, except for notebooks and pens, there should be nothing on the table.
The definitions I have printed for you must be learned. See the progress of solving problems, we will solve such problems.
Students will be rewarded for good answers.
Topic of the open lesson: Fiscal policy
Before solving each problem, I ask the basic definitions:
Terms for 1 task:
Fiscal (Fiscal) Policy government measures to change public spending, taxation and the state budget, aimed at ensuring full employment, equilibrium of the balance of payments and economic growth in the production of non-inflationary GDP.
A stimulative fiscal policy ( fiscal expansion) in the short term, it aims to overcome the cyclical downturn in the economy and involves an increase in government spending G, tax cuts T, or a combination of these measures. In the longer term, the policy of reducing
taxes can lead to an expansion in the supply of factors of production and an increase in economic potential.
Contractionary fiscal policy ( fiscal restriction) aims to limit the cyclical recovery of the economy and involves a reduction in government spending G, an increase in taxes T, or a combination of these measures.
In the short term, fiscal policies are accompanied by multiplier effects on government spending, taxes, and a balanced budget.
Government Spending Multiplier Formula:
- change in the equilibrium volume of production;
– increase in government spending;
is a multiplier that shows how much the equilibrium level of income in a closed economy increases as a result of the growth of not only government, but also any of the autonomous spending per unit. The main factor determining the value of the multiplier is the marginal propensity to consume (MPC).
Tax multiplier:
- tax changes.
The tax multiplier indicates that when there is an increase in the total amount of taxes, then income and output grow by an amount that is times greater than the increase in taxes. The tax multiplier is always negative.
Balanced budget multiplier:
The multiplier effect from tax cuts is weaker than from an increase in government spending, which is algebraically expressed as the excess of the spending multiplier over the tax multiplier by one. This is a consequence of the stronger impact of government spending on income and consumption (compared to changes in taxes). This difference is decisive in the choice of fiscal policy instruments. If it is aimed at expanding the public sector of the economy, then government spending is increased to overcome the cyclical downturn (which has a strong stimulus effect), and taxes are increased to curb inflation (which is a relatively mild restrictive measure).
Task #1. The economy is described by the following data:
C \u003d 20 + 0.8 (Y - T + F) (consumption);
I = 60 (investments);
T = 40 (taxes);
F = 10 (transfers);
G = 30 (government spending)
Y - production volume
0.8 - marginal propensity to consume
a) Calculate the equilibrium level of income.
b) The government increases spending to 40 to stimulate the economy:
What is the government spending multiplier?
c) The government increases taxes from 40 to 50 (with the level of government spending G = 30):
What happens to the budgeted cost curve?
How will the equilibrium level of income change?
What is the tax multiplier?
How will the state budget balance change?
d) The government simultaneously increases government spending from 30 to 40 and taxes from 40 to 50:
What happens to the budgeted cost curve?
How will the equilibrium level of income change?
What happens to the multiplier effect?
How will the state budget balance change?
Solution
a) To calculate the equilibrium level of income, we substitute the numerical values C, 1, T, F, G into the main macroeconomic identity and solve it for Y:
Y = 20 + 0.8 (Y 40 + 10) + 60 + 30.
After algebraic transformations, we get: Y=430 => this is the initial equilibrium (point A).
b) With an increase in government spending by 10 (from 30 to 40), the planned spending curve will shift up by 10 (see Fig. 1):
To calculate the change in the equilibrium level of income when moving from point A to point B, we use the government spending multiplier formula:
At point B, the equilibrium level of income has risen to 480. The government spending multiplier is:
Before the fiscal expansion, the state budget was balanced:
After the fiscal expansion arose budget deficit at a rate of 10, since government spending increased by 10, and tax revenues did not change.
c) With an increase in taxes by 10 (from 40 to 50), the planned expenditure curve will shift down by -ΔТ*МРС = -10 x 0.8 = -8 (see Fig. 2):
The equilibrium level of output will decrease by:
– tax multiplier formula
The economy will move from point A to point B, where the equilibrium output is 390.
The tax multiplier is:
After the tax restriction arose budget surplus at 10, as government spending and transfers remain at 40 and tax revenues have risen to 50.
d) With a simultaneous increase in government spending from 30 to 40 and taxes from 40 to 50, the planned spending curve will move up by 2, since the impact of budget expansion on aggregate demand is relatively stronger than tax containment (see Figure 3):
Figure 3
The equilibrium will move from point A to point B, with the equilibrium level of income, according to the balanced budget multiplier, also increasing by 10 to 440.
This can be verified by calculation:
Y \u003d 20 + 0.8 (Y - 50 + 10) + 60 + 40;
The effect of a balanced budget multiplier equal to one has appeared in the economy:
With such a policy, the budget will remain, as originally, balanced:
Task #2 . (formulas from problem No. 1).
The country's economy is characterized by the following data:
Actual Income (Y) = $4,000
Marginal propensity to consume (b) = 0.8.
Equilibrium income (Y*) = $4200
a) How should government spending change (ceteris paribus) for the economy to reach equilibrium (Y* = $4,200)?
b) How must tax revenues (ceteris paribus) change in order for the economy to reach equilibrium?
A) Δ Y = Δ G* b, where Δ Y is the increase in income, Δ G is the increase in government spending.
Δ Y = Y* - Y = $4200 - $4000 = $200
M \u003d 1/1-b \u003d 1/1-0.8 \u003d 1 / 0.2 \u003d 5
ΔG = 40, i.e. government spending should increase by $40.
B) Δ Y = Δ T * taxation multiplier, where T - taxes.
M tax ==-4
MPS - marginal propensity to save
200 \u003d Δ T * (-4)
Δ T = -50, i.e. taxes should be reduced by $50.
Definitions for task 3:
The main structural instruments of the state budget are: state budget revenues (taxes, fees); state budget expenditures (financing the economy, socio-cultural programs, defense, management).
The main types of the state budget are:
1. Normal - in this case, the expenditure side is equal to the revenue side.
2. Scarce, i.e. expenditure exceeds income.
The main forms of the deficit budget are:
- structural deficit Deficit resulting from government deliberate measures to increase public spending and cut taxes to prevent recessions. This is the difference between expenditures (revenues) and revenues (expenditures) of the budget in conditions of full employment;
- cyclical deficit- a deficit resulting from a cyclical decline in production and reflecting the crisis in the economy, the inability of the government to keep the financial situation under control. The cyclical deficit is often measured as the difference between the actual size of the budget deficit and the structural deficit.
Task #3: Suppose government purchases are 500, tax function is T = 0.4Y, transfer function F = 0.2Y, price level P = 1. Federal debt D = 1000 at interest rate R = 0.1. The real output (Y) is 2000, and the potential is 2500.
a) Is the government budget positive or negative?
b) What is the size of the structural deficit of the state budget?
c) What is the size of the cyclical government deficit?
a) The balance of the state budget can be calculated by comparing the expenditure and revenue parts:
Budget spending = government purchases (G) + transfers (F) + public debt service costs (DxR) = = 500 + 0.2x2000 + 0.1x1000 = 500 + 400 + 100 = 1000.
Budget revenues \u003d tax revenues (T) \u003d 0.4x2000 \u003d 800.
Actual budget deficit = 1000 - 800 - 200.
b) Structural deficit can be calculated by substituting potential output instead of actual output into calculations:
Structural deficit = = 500 + 0.2x2500 + 0.1x1000 - 0.4x2500 = 100.
c) Cyclical budget deficit = actual deficit - structural deficit 200 - 100 = 100.
Similar information.
The essence of the stabilization policy, constantly pursued by the government, is reduced to the impact of the state on aggregate demand and (or) aggregate supply in order to maintain their dynamic balance at the desired values of employment, price level and income. The main goal of the state economic policy is keeping the economy at full employment. This guarantees the absence of unemployment and inflation.
The modern market economy, with all the variety of its models, is characterized by a socially oriented economy, which is supplemented by state regulation.
The performance of the functions of state regulation is impossible without the centralization of funds necessary for:
- maintaining the social sphere and social protection of the population(health care, development of culture, payment of wages to budgetary institutions, pensions and benefits, financing of preschool institutions, financial support for the needy, etc.);
- development of priority areas of the economy(financing of research and development, support for the agro-industrial complex, redistribution of funds between sectors of the national economy, etc.);
- ensuring the defense and security of the state(maintenance of the army, financing of the military-industrial complex);
- support of international relations(contributions to international organizations to ensure the participation of the state in them, etc.).
To perform all these functions, the country's government develops and implements a fiscal (or fiscal) policy that combines measures to form an integral structure of the budget system and the tax system of the state.
fiscal policy(from lat. fisc - tax) - a set of government measures to levy taxes and spend state budget funds to achieve macroeconomic equilibrium at the level of full employment in the absence of inflation.
Keynesian theory considers this policy as the most effective instrument of state influence on economic growth, employment and price dynamics, because. the state does not express private interests, like firms and households, but public ones. In the Keynesian model of economic equilibrium, the stabilizing role of fiscal policy is related to its impact on the equilibrium GNP (NNP, NI) through changes in total spending (aggregate demand).
Fiscal policy includes only such manipulations of the budget that are not accompanied by a change in the amount of money in circulation.
Fiscal policy consists of discretionary and automatic.
Discretionary fiscal policy (Latin discrecio - acting at its discretion) is a conscious change in taxes and government spending by the government in order to achieve macroeconomic equilibrium at full employment in the absence of inflation.
The main instruments of this policy are:
1. Change in the volume of public procurement of goods and services ( G).
2. Change in the amount of income tax (T).
The nature of discretionary fiscal policy is greatly influenced by the state of the economy; at different phases of the economic cycle, this policy uses different tools (Fig. 8.1).
Rice. 8.1. State economic policy during periods of recession (a) and lifting (b)
During the period of economic downturn (insufficient demand) stimulating discretionary policy ( fiscal expansion policy, expansionist), which consists of an increase in government spending and tax cuts, which prevents a fall in production and is aimed at increasing aggregate demand. The task of the state economic policy during an economic downturn(see Fig. 8.1, a) - to achieve an increase in production Y* up to potential level Y 1 and achieving full employment through increased planned spending ( AE- aggregated expenses).
During the period of economic recovery (excess demand) deterrent (restrictive) fiscal policy aimed at reducing aggregate demand by reducing government spending and (or) increasing taxes. The task of the state economic policy during the economic boom(see Fig. 8.1, b) - to achieve a decrease in production Y* up to potential level Y 1 and eliminate excess employment by reducing planned spending ( AE).
It is also often used combined fiscal policy, which is the use of both instruments simultaneously.
By influencing aggregate demand in this way, discretionary fiscal policy influences the equilibrium output in the country. This influence is multiplier and is measured using multipliers public spending(purchases), taxes and balanced budget.
Government Spending Multiplier (m G) - the ratio of the change in equilibrium output and income to the change in the value of public purchases of goods and services, showing how many times the final increase in total income exceeds the initial increase in public purchases of goods and services that caused it.
Let's consider this multiplicative effect on the example of stimulating fiscal policy (Fig. 8.2).
Rice. 8.2. Government Spending Multiplier Effect
Increase in government purchases of goods and services by ?G shifts the function of planned expenses AE upwards and shifts the equilibrium point from position 1 to position 2. A change in government spending has a clearly multiplier effect, since the final increase in planned spending ?AE and total income ?Y more than the original increase in government purchases ?G.
During the economic rise in order to reduce the volume of production and employment, government purchases of goods and services are reduced. Then the amount of planned expenditures is reduced by the amount of reduction in public procurement of goods and services ?G. At the same time, output and total income are reduced by more than ?G due to the multiplier effect (see Fig. 8.2 - reverse transition from point 2 to point 1).
Its calculation formula is similar to the investment multiplier:
This is proved algebraically for a three-sector economy (with state participation). At the point of balance Y = AE = C + I + G = (a + MPC*Y) + I + G. Let's solve this equation for Y:
Hence it is obvious that .
Since MRS< 1, то мультипликатор государственных закупок всегда больше единицы.
It should be noted that an increase in any component of autonomous spending gives exactly the same multiplier effect (see topic 5)
The economic meaning of the government spending multiplier. With an increase in government spending, planned total spending increases by ?G. In response, the output will increase by the same amount, and hence the total income: ?Y 1 = ?G (?Y 1 is the primary increase in total income.
The growth of aggregate income will, in turn, cause an increase in consumer (and with them aggregate) planned spending on MRS * ?Y 1. Due to this, the volume of production, and hence the total income, will increase by the same amount: ?Y 2 = ?Y 1 * MPC = ?G*MPC (?Y2- this is a secondary increase in total income, etc.).
A new increase in income will cause a new increase in consumer (and with them total) planned expenditures, now by MRS *? Y 2 .
Then the volume of production, and hence the total income will increase as follows:
?Y 3 \u003d ?Y 2 * MPC \u003d (? Y 1 * MPC) * MPC \u003d (? G * MPC) * MPC etc. to infinity.
In general:
?Y n \u003d? Y n -1 * MPC \u003d? G * MPC n -1.
Hence, an increase in public procurement leads to a multiple (multiplicative) expansion of total income and planned expenditures.
Tax multiplier (m T) - the ratio of the change in equilibrium output to the change in tax revenues, showing how many times the final increase in total income exceeds the initial change in the volume of income taxes.
With income taxation, disposable income for consumption and savings becomes less than total income by the amount of taxes collected. The consumption function takes the form: .
During an economic downturn, income taxation is reduced in order to increase output and employment. At the same time, the disposable income of households increases, and their consumer demand increases. Then the volume of planned expenditures will increase, and the volume of production and total income will also increase, and more than by the amount of tax cuts due to the action tax multiplier.
A graphic representation of the effect of the tax multiplier in the implementation of an expansionary fiscal policy is shown in Fig. 8.3.
Rice. 8.3. Tax multiplier effect
Reducing income taxes on ?T increases household disposable income by the same amount ( ?Yd = -?T). This increase in disposable income will be used to increase savings by MPS*?Y d = -MPS*?T and to increase consumption by the amount MPС*?Y d = -MPС*?T. As a result, the function of planned expenses will shift up by the amount MPС*?T and the equilibrium point will shift from position 1 to position 2. A change in income taxation has a multiplier effect, since the final increase in planned expenditures ?AE and total income ?Y modulo greater than the original income tax cut ?T.
The tax multiplier is always less than the government spending multiplier, since when taxes change, consumption changes partially (part of disposable income is used for savings), while each unit of increase in government spending has a direct impact on output and income.
So:
The minus sign indicates the negative impact of tax increases on output and income.
This is also proved algebraically. At the equilibrium point, the equality takes place Y = C + I.
Let's introduce the consumption function taking into account taxation:
Let's solve this equation for Y:
Hence it is obvious that
Where is the tax multiplier.
The modulo tax multiplier can be both greater and less than one, but in any case, modulo it is less than the public procurement multiplier according to (8.2).
During the period of economic recovery, in order to reduce the volume of output and employment, an increase in the level of income taxation is carried out. Then the volume of planned expenses will decrease by the amount? T*MRS. At the same time, the volume of production and total income are reduced modulo more than by? T due to the action of the tax multiplier (see Fig. 8.3 - the reverse transition from point 2 to point 1).
The economic meaning of the tax multiplier. The reasoning is largely similar to the derivation of the public procurement multiplier. By reducing income taxation by ?T planned expenses increase by - ?T*MRS. In response, the volume of production will increase by the same amount, and hence the total income: ?Y 1 \u003d -? T * MRS. Further development of the process of multiplier expansion of planned expenditures and total income will occur in the same way as in the case of an increase in government purchases.
In general:
?Y n \u003d? Y n -1 * MPC \u003d-? T * MPC n.
At the end of the process of multiplier expansion of income, the total increase in total income will be (according to (5.8)):
Hence, the reduction in income taxation also leads to a multiple (multiplicative) expansion of total income and planned expenditures.
The simultaneous effect of a change in government spending and income taxes on the change in output and total income is represented by the following formula:
Balanced budget multiplier shows that equal increases in government spending and taxes lead to an increase in equilibrium output by the amount of their increase (this is obvious from (8.3)). A change in government spending has a stronger effect on total spending than a change in taxes of the same magnitude. Government spending has a direct and direct effect on total spending, while a change in the amount of taxes affects it indirectly through a change in after-tax income, which changes the amount of consumer spending. It is always equal to 1 (such as ), which is equivalent to the absence of multiplicative effects. So observance of the budget balance rule sharply reduces the effectiveness of fiscal policy.
Since government purchases of goods and services have a direct direct impact on the amount of national income and since they are an exogenous and autonomous value, i.e. income-independent (G= G), then adding them to the sum of consumer and investment spending on the graph is displayed as a parallel upward shift in the total spending curve.
A change in the value of government purchases DG, as well as a change in other types of autonomous spending (consumer spending DC or investment spending DI), has a multiplier effect in the Keynesian model. If the state purchases goods or services for an additional $100 (hires an official or teacher and pays him a salary, or buys equipment for his enterprise, or starts building a freeway, etc.), i.e. DG = $100, then the disposable income of the seller of that good or service is increased by that amount and divided by consumption (C) and saving (S). If the marginal propensity to consume ( mpc) is equal to 0.8, then as a result we will get the familiar pyramid and the multiplier effect.
The total increase in aggregate income (DY) as a result of an increase in government purchases will be: DY = DG × mult = DG × (1/1 - mpc) = 100 × 5 = 500. Thus, as a result of an increase in government purchases by 100, total income increased five times . The value 1/(1 – mpc) is called the public procurement multiplier. The government procurement multiplier is a coefficient that shows how many times the total income increased (decreased) with an increase (decrease) in government purchases per unit. For the algebraic derivation of the public procurement multiplier, we add their value to the function of total income (output) Y and G. We get: Y= C + I+ G . Since the consumption function is: C = WITH+ mpc Y , we substitute it into our equation: , regroup and get:
.
Thus, is a multiplier of any kind of autonomous spending: consumer, investment and government. Let us denote it as K A - the multiplier of autonomous expenses K A \u003d Kc \u003d K I \u003d K G, where Kc is the multiplier of autonomous consumer spending, K I is the multiplier of autonomous investment spending, K G is the multiplier of government purchases (it is sometimes called the multiplier of government spending, which is not entirely correct, since, as we know, government spending also includes transfers, the multiplier of which has a different formula and value, which will be discussed later.) The larger mpc, the steeper the planned expenditure curve Ep and the greater the value of the expenditure multiplier.
Keep in mind that the multiplier works both ways. With an increase in spending, the total (national) income increases multiplicatively, and with a reduction in spending, the total (national) income decreases multiplicatively. This principle applies not only to the spending multiplier, but to all other types of multipliers.
Taxes and their types
As Benjamin Franklin wrote, “There is nothing inevitable in life but death and taxes.” Tax- this is the forced withdrawal by the state from households and firms of a certain amount of money not in exchange for goods and services. Taxes appear with the emergence of the state, because they are main source of government revenue. Performing its many functions, the state (government) incurs expenses that are paid from its revenues, so taxes are source of funds for government spending.
Since the services of the state (which, of course, cannot be provided free of charge) are used by all members of society, the state collects fees for these services from all citizens of the country. Thus, taxes are main instrument of income redistribution between members of society.
The tax system includes: 1) the subject of taxation (who should pay the tax); 2) object of taxation (what is taxed); 3) tax rates (the percentage by which the tax amount is calculated).
The amount with which the tax is paid is called the taxable base. To calculate the amount of tax (T), the value of the taxable base (B T) should be multiplied by the tax rate (t): T = B T x t
The principles of taxation were formulated by A. Smith in his great work "A Study on the Nature and Causes of the Wealth of Nations", published in 1776. According to Smith, the tax system should be: fair(it should not enrich the rich and impoverish the poor); understandable(the taxpayer must know why he pays this or that tax and why he pays it); comfortable(taxes should be levied when and in such a way, when and in what way it is convenient for the taxpayer, and not for the tax collector); inexpensive(the amount of tax revenues must significantly exceed the costs of collecting taxes).
The modern tax system is based on the principles of fairness and efficiency.
Justice must be vertical(meaning that people with different incomes must pay different taxes) and horizontal(implying that people with equal incomes must pay equal taxes). There are two main types of taxes: direct and indirect. direct tax- this is a tax on a certain amount of money received by an economic agent (income, profit, inheritance, monetary value of property). Therefore, direct taxes include: income tax; income tax; inheritance tax; property tax; vehicle owner tax. A feature of a direct tax is that the taxpayer (the one who pays the tax) and the tax bearer (the one who pays the tax to the state) are one and the same agent. indirect tax is part of the price of a good or service. Since this tax is included in the price of purchases, it is implicit. An indirect tax can be included in the price of a product either as a fixed amount or as a percentage of the price. Indirect taxes include: value added tax(VAT) (this tax has the greatest weight in the tax system of Russia); sales tax; sales tax; excise tax(excisable goods are cigarettes, alcoholic beverages, gasoline, oil, cars, jewelry); customs duty. The peculiarity of the indirect tax is that the taxpayer and the tax bearer are different agents. The taxpayer is the buyer of a good or service (it is he who pays the tax upon purchase), and the tax bearer is the company that produced this product or service (it pays the tax to the state).
In developed countries, 2/3 of tax revenue comes from direct taxes, while in developing countries and countries with economies in transition, 2/3 of tax revenue comes from indirect taxes, since they are easier to collect and the amount of revenue depends on prices, not income. For the same reason, it is more profitable for the state to use indirect rather than direct taxes during the period of inflation. This minimizes the loss of the real value of tax revenues.
Depending on how the tax rate is set, there are three types of taxation: proportional tax, progressive tax and regressive tax.
At proportional tax The tax rate does not depend on the amount of income. Therefore, the amount of tax is proportional to the amount of income.
Direct taxes (with the exception of income tax and in some countries income tax) and almost all indirect taxes are proportional.
At progressive tax The tax rate increases as income increases and decreases as income decreases.
At regressive tax The tax rate increases as income decreases and decreases as income increases.
Explicitly, a regressive taxation system is not observed in modern conditions; no direct regressive taxes. However, all indirect taxes are regressive, and the higher the tax rate, the more regressive it is. The most regressive are excise taxes. Since the indirect tax is part of the price of the goods, then, depending on the size of the income of the buyer, the share of this amount in his income will be the greater, the lower the income, and the less, the greater the income. For example, if the excise tax on a pack of cigarettes is 10 rubles, then the share of this amount in the budget of a buyer with an income of 1,000 rubles is 0.1%, and in the budget of a buyer with an income of 5,000 rubles. – only 0.05%.
In macroeconomics, taxes are also divided into: autonomous(or chord), which do not depend on the level of income and are denoted by T and income, which depend on the level of income and the value of which is determined by the formula: tY, where t is the tax rate, Y is the total income (national income or gross national product)
The amount of tax revenues (tax function) is equal to: T = T + tY
Distinguish between the average and the marginal tax rate. Average rate tax is the ratio of the tax amount to the amount of income: t cf \u003d T / Y. Limit rate tax is the amount of tax increase for each additional unit of income increase. (it shows how much the tax amount increases with an increase in income per unit): t prev \u003d DT / DY. Suppose that the economy has a progressive taxation system, and income up to 50 thousand dollars. taxed at a rate of 20%, and more than 50 thousand dollars. - at a rate of 50%. If a person receives 60 thousand dollars. income, he pays the amount of tax equal to 15 thousand dollars. (50 x 0.2 + 10 x 0.5 = 10 + 5 = 15), i.e. 10 thousand dollars from the amount of 50 thousand dollars. And 5 thousand dollars. from an amount exceeding 50 thousand dollars, i.e. from 10 thousand dollars The average tax rate would be 15:60 = 0.25 or 25% and the marginal tax rate would be 5:10 = 0.5 or 50%. Under a proportional taxation system, the average and marginal tax rates are equal.
Taxes affect both aggregate demand and aggregate supply. However, our cost-income model, because it is a Keynesian model, only considers the impact of taxes on aggregate demand.
Within the framework of the “expenditure-income” model, taxes, as well as government purchases, act on national income (total output) Y with multiplier effect.
There are two types of tax multiplier: 1) the multiplier of autonomous (chord) taxes and 2) the income tax multiplier
Budget revenues - funds received on a gratuitous and irrevocable basis in accordance with the legislation of the Russian Federation at the disposal of state authorities of the Russian Federation, constituent entities of the Russian Federation and local self-government. Income is divided into groups, subgroups, articles and sub-articles (four levels). In Russia, four income groups are used:
tax;
non-tax;
gratuitous receipts;
income of target off-budget funds.
Tax revenues are discussed in detail in the first paragraphs of this chapter.
The group of non-tax income includes a number of subgroups. These subgroups include, for example, income from state and municipal property, income from the sale of land and intangible assets, income from foreign economic activity, etc.
Gratuitous receipts include transfers from non-residents, budgets of other levels, state non-budgetary funds, state organizations, etc.
Target off-budget funds are divided into social and economic. Social funds include the Pension Fund of the Russian Federation, the State Employment Fund of the Russian Federation, the Federal and Territorial Compulsory Medical Insurance Funds, and the Social Insurance Fund of the Russian Federation. Economic funds are the Fund for the Development of the Customs System of the Russian Federation, road funds, etc.
In turn, subgroups are divided into articles and subarticles. For example, the subgroup “tax on profit (income), capital gains” is divided into two articles: tax on profit (income) of enterprises and organizations and income tax on individuals. The article “income tax on individuals” is divided into three sub-articles: income tax withheld by enterprises, institutions and organizations, income tax withheld by tax authorities, and tax on gambling business.
Expenses of the state budget - funds allocated for the financial support of the tasks and functions of state and local self-government. The classification of state budget expenditures is a grouping of expenditures of budgets of all levels, reflecting the direction of budget funds for the implementation of the main functions of the state. The grouping has a four-level structure: sections and subsections, target items and types of expenses. The sections include national issues, national defense, national security and law enforcement, national economy, housing and communal services, environmental protection, education, culture, cinematography and the media, health care and sports, social policy, interbudgetary transfers, etc. .
The budget allocations for federal budget expenditures, approved by the Federal Law "On the Federal Budget for 2006", were equal to 4,445 billion rubles. 4281 billion rubles were executed. Thus, the actual execution amounted to 96.31% of the plan. The execution by main sections and subsections was as follows:
national issues - 530 billion rubles, i.е. 12.38\% of the executed budget;
functioning of the President of the Russian Federation - 6.9 billion rubles, i.e. 0.16\%;
national defense - 682 billion rubles, i.e. 15.93\%;
national security and law enforcement - 550 billion rubles, i.e. 12.85\%;
national economy - 345 billion rubles, i.e. 8.06\%;
housing and communal services - 53 billion rubles, i.е. 1.24\%;
education - 212 billion rubles, i.е. 4.95\%;
Pension provision - 141 billion rubles, i.e. 3.29%, etc. According to the long-term financial plan approved by
Government of the Russian Federation, federal budget revenues in 2008 will amount to 7112 billion rubles, in 2009 - 7797 billion rubles. The total expenses in 2008 will amount to 6093 billion rubles, in 2009 - 6716 billion rubles.
The volume of the stabilization fund at the beginning of 2008 - 4194 billion rubles, at the beginning of 2009 - 5463 billion rubles.
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