Taxes and spending

Objective: Explain tax and government purchase, distinguish their meanings, and apply them to a described case.

Tax: A tax is a compulsory payment imposed by government under applicable law. Government purchase: A government purchase buys goods or services and differs from a transfer payment. Public policy changes incentives, resources, and constraints. Effects depend on institutional design, economic conditions, behavioral responses, and timing. A tax's legal payer need not bear its entire economic burden. Deficits are flows during a period, while debt is a stock at a date. Evaluation needs a credible alternative path, attention to implementation, and disclosure of distributional effects and uncertainty. Application: Households make required payments used to support public functions. This most directly illustrates tax. A government pays for construction work. This most directly illustrates government purchase.

Objective: Explain transfer payment and budget deficit, distinguish their meanings, and apply them to a described case.

Transfer payment: A transfer provides income without purchasing current production from the recipient. Budget deficit: A deficit occurs when spending exceeds revenue during a period under the accounting definition. Public policy changes incentives, resources, and constraints. Effects depend on institutional design, economic conditions, behavioral responses, and timing. A tax's legal payer need not bear its entire economic burden. Deficits are flows during a period, while debt is a stock at a date. Evaluation needs a credible alternative path, attention to implementation, and disclosure of distributional effects and uncertainty. Application: A qualifying benefit supplies household income. This most directly illustrates transfer payment. Annual outlays exceed annual receipts. This most directly illustrates budget deficit.

Objective: Explain public debt and tax incidence, distinguish their meanings, and apply them to a described case.

Public debt: Public debt is an accumulated stock of outstanding government borrowing. Tax incidence: Tax incidence concerns who ultimately bears a tax's economic burden, not only who remits it. Public policy changes incentives, resources, and constraints. Effects depend on institutional design, economic conditions, behavioral responses, and timing. A tax's legal payer need not bear its entire economic burden. Deficits are flows during a period, while debt is a stock at a date. Evaluation needs a credible alternative path, attention to implementation, and disclosure of distributional effects and uncertainty. Application: An account reports obligations outstanding at a date. This most directly illustrates public debt. A seller remits a tax while prices shift some burden to buyers. This most directly illustrates tax incidence.