Budgets and Fiscal Policy

Budgets are systems used by governments and organizations to indicate planned expenditures and revenues for a given year. Budgets are in surplus or deficit depending on whether the government has revenues greater or less than its expenditures.

Fiscal policy refers to taxation and expenditure policies. In this connection, the modern economy is blessed with important “built-in stabilizers”. Requiring no discretionary action, tax receipts change automatically when income changes, reducing the multiplier and offsetting part of any disturbance. The same stabilizing effect is produced by unemployment compensation and other welfare transfers that grow automatically as income falls.

Automatic stabilizers never fully offset the instabilities of an economy. They reduce the multiplier, but do not make it zero. Scope is left for discretionary programs. Discretionary policies include public works, jobs programs, and various tax programs. Public works involve such long time lags in getting under way as to make their use for combating short recessions impractical. Discretionary variations in tax rates offer greater short-run flexibility but suffer from severe political complications in the United Stales. Most macroeconomists believe that monetary policy is more useful than fiscal policy for combating the short-term fluctuations of the business cycle.

When people began to drop the notion that the government’s budget had to be balanced in everу year or month, they first thought it would be balance over the business cycle – with boom-time surpluses matching depression deficits. Today, we realize that only by coincidence would the surplus in prosperous years just balance deficits in recession year.

To get a better measure of changes in discretionary fiscal policy, economists supplement knowledge of the budget by separating the actual budget into its structural and cyclical components. The structural budget calculates how much the government would collect and spend if the economy were operating at potential output. The cyclical budget accounts for the impact of the business cycle on tax revenues, expenditures, and the deficit. To assess the impact of usual policy on the economy, we should pay close attention to the structural deficit: changes in the cyclical deficit are a result of changes in the economy rather than a cause of changes in the economy.

B. Translate into English.

Сторонники концепции экономики предложения признают также, что более низкие ставки налогов не обязательно должны приводить к сокращению налоговых поступлений. В действительности можно ожидать, что снижение ставок налогов обеспечит рост налоговых поступлений за счет значительного роста национального выпуска и доходов. Эта расширившаяся налоговая база обеспечит рост налоговых доходов даже при более низких ставках. Таким образом, в то время как с точки зрения традиционных кейнсианских подходов снижение налоговых ставок вызовет сокращение налоговых поступлений и увеличит дефицит бюджета, подход экономики предположения предполагает, что сокращение ставок налогов может быть организовано таким образом, что оно обеспечит рост налоговых поступлений и сокращение дефицитов.