Government Purchases
exhaustive; the products purchased directly absorb (require use of) resources and are part of the domestic output. For example, the purchase of a missile absorbs the labor of physicists and engineers along with steel, explosives, and a host of other input
Government Purchases
(G) expenditures by government for goods and services that government consumes in providing public goods and for public capital that has a long lifetime; the expenditures of all governments in the economy for those final goods and services.
Transfer Payments
non-exhaustive; they do not directly absorb resources or create output. Social Security benefits, welfare payments, veteran's benefits, and unemployment compensation are examples of transfer payments. Their key recipients make no current contribution to d
Transfer Payments
a payment of money (or goods and services) by a government to a household or firm for which the payer receives no good or service directly in return.
Government Revenue
the funds used to pay for government purchases and transfers come from three sources: taxes, proprietary income, and funds that are borrowed by selling bonds to the public.
Federal Expenditures
pensions and income security, national defense, health, and interest on the public debt.
Pensions and Income Security
includes the many income-maintenance programs for the aged, persons with disabilities or handicaps, the unemployed, retired, and families with no breadwinner.
National Defense
accounts for about 19 percent of the Federal budget, underscoring the high cost of military preparedness.
Health
reflects the cost of government health programs for the retired (Medicare) and poor (Medicaid).
Interest on the Public Debt
accounts for 5 percent of Federal spending.
Personal Income Tax
the kingpin of the Federal tax system; a tax levied on the taxable income of individuals, households, and unincorporated firms. (progressive tax)
Payroll Tax
based on wages and salaries; taxed levied on employers of labor equal to a percentage of all or part of the wages and salaries paid by them and on employees equal to a percentage of all or part of the wages and salaries received by them. (regressive tax)
Corporate Income Tax
a tax levied on the net income (accounting profit) of corporations; difference between its total revenue and total expenses. (proportional tax)
Excise Taxes
a tax levied on the production of a specific product or on the quantity of the product purchased; similar to sales tax, but sales tax falls on a wide range of products, whereas excises are levied individually on a small, select list of commodities.
State Finances
revenues and expenditures associated with the state.
Benefits-received Principle
the idea that those who receive the goods and services provided by government should pay the taxes required to finance them.
Ability-to-pay Principle
the idea that those who have greater income (or wealth) should pay a greater proportion of it as taxes than those who have less income (or wealth).
Progressive Tax
a tax whose average tax rate increases as the taxpayer's income increases and decreases ad the taxpayer's income decreases.
Regressive Tax
a tax whose average tax rate decreases as the taxpayer's income increases and increases as the taxpayer's income decreases.
Proportional Tax
a tax whose average tax rate remains constant as the taxpayer's income increases or decreases.