Budget, debt and economic policies

What are the main sources of income and expenditures for the goverment in Canada? Sources of income: -Taxes (individual and corporate) -Taxes on goods and services Sources of expenditure: -Programs and Operations -public investment Sources of income: -Taxes (individual and corporate) -Taxes on goods and services Sources of expenditure: -Programs and Operations -public investment

What is the relationship between government income and real GDP? When GDP is rising, incomes of economic agents are also increasing, which increases government revenues. When GDP is declining, incomes of economic agents are also declining, which reduces government revenues.

What is the relationship between public expenditure and real GDP ? When real GDP is down, more people dependent on government transfers and this increase government spending. When real GDP is rising, fewer people dependent on government transfers and this reduce government spending.

Why should governments make economic forecasts before making their budget? The forecasts of real GDP growth allow governments to anticipate their income and expenses.

How does one assess the balance of expenditure and government revenue?  The operating balance = Income - program expenditures Budget balance = Operating balance - debt service

Exemple Income taxes Income taxes = 500$ Corporate taxes = 100$ Sales taxes= 50$ Program expenditues= 600$ Debt service= 80$ The operating balance = 50$ (650$ - 600) Budget balance = - 30$ (50$ - 80$) X

Government budget balance can be: Positive (surplus) Negative (deficit) Zero (balanced budget) Government budget balance can be: Positive (surplus) Negative (deficit) Zero (balanced budget)

Where does the canadian federal government debt comes from? The federal government has been in deficit for 27 consecutive tax years ( ). The addition of these deficits created the federal debt. From 1997 to 2007, the government had surpluses and the debt decreased. Since 2007, the government budget is in a deficit status. The federal government has been in deficit for 27 consecutive tax years ( ). The addition of these deficits created the federal debt. From 1997 to 2007, the government had surpluses and the debt decreased. Since 2007, the government budget is in a deficit status.

Revenues and expenditures of the federal government (1970 to 2000) Revenues and expenditures of the federal government (1970 to 2000) p. 284

How do we assess the importance of public debt? The absolute amount of debt does not mean anything. Always take into account the country's ability to pay that debt. The ability of a country to pay its debt is related to the GDP, because GDP generates revenues for the State: Always look at the Debt / GDP ratio

Net public debt relative to GDP between and p. 286

What are the main consequences of an increase in the public debt ?  Crowding out effect (Effet d’éviction) (see at the end of this theme)  Decreasing flexibility of the governments  Loss of confidence of the financial markets

What is the Laffer curve ? p. 276