Demand-side policies GapFill

Fiscal policies are a primary responsibility of government. Governments must determine levels of public expenditure to ensure public services can meet the needs of the population, reduce inequality and improve standards of living. Governments must also determine the level of taxation across society, while maintaining enterprise and affordability.

Governments must decide the right level of tax and spend in the context of the budget deficit. One way of doing this is on a   proportionalstructuralprogressivecyclical basis: during a period of recession governments might choose to run a budget  statementdeficitsurplusdefault, in order to stimulate the economy. During a boom, governments might choose to maintain a budget  statementdefaultdeficitsurplus, in order to build up reserves. The budget is set on an annual basis, and should be seen as distinct from the total amount a country owes, known as the  national reservenational incomenational interestnational debt. In the UK, a public organisation which advises the government on desirable levels of tax-and-spend is the  HM Revenue and CustomsFinancial Conduct AuthorityCompetition and Markets AuthorityOffice for Budget Responsibility.

If an economy is suffering from a  proportionalcyclicalstructuralprogressive deficit, then reducing public spending might be necessary. Alternatively, governments might increase taxation. The tax burden can be made more equitable through the use of   cyclicalstructuralprogressiveproportional taxation, which places a greater burden on high earners, as opposed to   proportionalstructuralcyclicalprogressive taxation, which charges everyone the same rate.