Terms Related to Public Finance
- Crowding Out Effect: The crowding out effect occurs when increased government spending or borrowing leads to a reduction in private sector investment.
- Fiscal Drag: Situation where inflation pushes income into a higher tax bracket. The result is increase in income taxes but no increase in real purchasing power
- Fiscal Neutrality: When the net effect of taxation and public spending is neutral
- Pump-Priming: Generally, during a recessionary period, through government spending and interest rate and tax reductions in an attempt to revive economy during recession
- Twin Deficit: Worsening of both Current Account deficit and Fiscal deficit simultaneously in the economy.
- Fiscal Cliff: The fiscal cliff refers to a combination of expiring tax cuts and across-the-board government spending cuts
- Off Budget Financing: Expenditure that’s not funded through the budget.
- Sovereign Debt Crisis: It describes the difficulties that a nation faces to service the loans it takes from the foreign sources in foreign currency.
- Economic Stimulus: Government measures to encourage private sector economic activity by engaging in targeted, expansionary monetary or fiscal policy based on Keynesian economics.
- Fiscal Stimulus: When the government takes certain measures for lowering taxes or increases its spending in a bid to revive the economy.
- Monetary Stimulus: It involves cutting interest rates to stimulate the economy. Lower interest rate will reduce the cost of borrowing, hence more borrowing will take place.