Download Fiscal Policy

Fiscal Policy
Public Finance ( 3 )
1
Ways to finance government
expenditures in Hong Kong
• Tax revenue : direct and indirect taxes
• Non-tax revenue : sale of land, fees and
charges …….
• Past fiscal surplus ( 財政儲備 )
• Selling government bonds ?
Public Finance ( 3 )
2
Types of Government Expenditures
• Classification by
function: Types
• Economic services
• Security
• Social welfare
• Health
• Education
• Environment
• Community & external
affairs
• Infrastructure
• Support
• Housing
Public Finance ( 3 )
• Classification by nature
• Capital expenditure refers
to expenditure on capital
works and is non-recurrent
in nature.
• Revenue expenditure
refers to regular
expenditure.
3
Fiscal Policy : Government
Budgeting Policy
Fiscal policy means that the government
makes decisions on taxation and spending
with an aim to influence the income
( GDP ) and employment.
Public Finance ( 3 )
4
Economic Problems: An
economy is not doing well when..
• Unemployment rate is rising.
• Real GDP growth rate falls or even becomes
negative.
• Price level is falling.
• ( Or, price level is rising. )
Public Finance ( 3 )
5
Aims of Fiscal Policy
• Full employment ( very low unemployment
rate )
• Economic growth ( real GDP growth )
• Price stability ( without deflation and
inflation )
Public Finance ( 3 )
6
Types of Budget : How to achieve
the above aims ?
• Surplus budget ( 盈餘預算 ) : estimated
revenue is larger than estimated expenditure.
• Deficit budget ( 赤字預算 ) : estimated revenue
is smaller than estimated expenditure.
• Balanced budget (平衡預算 ) estimated revenue
is equal to estimated expenditure.
Public Finance ( 3 )
7
Surplus budget ( 盈餘預算 )
• Economic condition: inflation and overheated
economy
• Aim: Price stability
• Policy : contractionary fiscal policy


decrease government expenditure
increase tax rate
Public Finance ( 3 )
8
Deficit budget ( 赤字預算 )
• Economic condition: unemployment and
falling real GDP growth
• Aims: Reducing unemployment and
economic growth
• Policy : expansionary fiscal policy


increase government expenditure
decrease tax rate
Public Finance ( 3 )
9
What type of budget policy would you advise
the Financial Secretary of the HKSAR to adopt
to achieve economic growth and high
employment ?
Public Finance ( 3 )
End
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