ECONOMICS
BUDGETING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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net government spending is reduced either through higher taxation revenue / through reduced government spending / both
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net increase in government spending where government spending is more than tax revenue
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government spending is equal to tax revenue
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None of the above
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Detailed explanation-1: -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.
Detailed explanation-2: -The Concept of Tax Neutrality The primary purpose of the tax system is to raise the revenue needed to pay for government spending. As such, the goal is to raise this revenue without distorting the decisions that individuals and firms would otherwise make for purely economic reasons.
Detailed explanation-3: -Neutral Fiscal Policy This policy implies a balance between government spending and Furthermore, it means that tax revenue is fully used for government spending. Also, the overall budget outcome will have a neutral effect on the level of economic activities.
Detailed explanation-4: -Budget neutrality means that federal spending over the life of the waiver period must be no greater than federal spending would have been in absence of the waiver. In order to establish budget neutrality, states identify sources of savings in their programs to offset the cost of any program expansion.
Detailed explanation-5: -Proposition 1 (Ricardian debt neutrality) means that so long as tax relief due to debt issuance and tax burden of debt redemption occur within the same generation, debt policy is meaningless. The government deficit does not matter.