Budget revenues - cash received free of charge and irrevocably in accordance with the law Russian Federation at the disposal of state authorities of the Russian Federation, subjects of the Russian Federation and local self-government. Income is divided into groups, subgroups, articles and sub-articles (four levels). In Russia, four income groups are used:
tax;
non-tax;
gratuitous receipts;
income of target off-budget funds.
tax revenue discussed in detail in the first sections of this chapter.
The group of non-tax income includes a number of subgroups. These subgroups include, for example, income from state and municipal property, income from the sale of land and intangible assets, income from foreign economic activity, etc.
Gratuitous receipts include transfers from non-residents, budgets of other levels, state non-budgetary funds, government organizations and etc.
Target off-budget funds are divided into social and economic. To social funds applies Pension Fund Russian Federation, State Employment Fund of the Russian Federation, Federal and territorial funds of compulsory health insurance, Foundation social insurance RF. Economic funds are the Fund for the Development of the Customs System of the Russian Federation, road funds, etc.
In turn, subgroups are divided into articles and subarticles. For example, the subgroup “tax on profit (income), capital gains” is divided into two items: tax on profit (income) of enterprises and organizations and income tax With individuals. The article “personal income tax” is divided into three sub-articles: income tax withheld by enterprises, institutions and organizations, income tax withheld tax authorities, and a gambling tax.
State budget expenditures are funds allocated for financial security tasks and functions of state and local self-government. The classification of state budget expenditures is a grouping of expenditures of budgets of all levels, reflecting the direction budget funds to carry out the basic functions of the state. The grouping has a four-level structure: sections and subsections, target items and types of expenses. The sections include national issues, national defense, national security and law enforcement, national economy, housing and communal services, environmental protection, education, culture, cinematography and the media, health care and sports, social policy, interbudgetary transfers, etc. .
Budget appropriations of federal budget expenditures, approved federal law"On the federal budget for 2006", were equal to 4445 billion rubles. 4281 billion rubles were executed. Thus, the actual execution amounted to 96.31% of the plan. The execution by main sections and subsections was as follows:
national issues - 530 billion rubles, i.е. 12.38\% of the executed budget;
functioning of the President of the Russian Federation - 6.9 billion rubles, i.e. 0.16\%;
national defense - 682 billion rubles, i.e. 15.93\%;
national security and law enforcement - 550 billion rubles, i.e. 12.85\%;
national economy - 345 billion rubles, i.e. 8.06\%;
housing and communal services - 53 billion rubles, i.е. 1.24\%;
education - 212 billion rubles, i.е. 4.95\%;
Pension provision - 141 billion rubles, i.e. 3.29%, etc. According to the long-term financial plan approved by
Government of the Russian Federation, federal budget revenues in 2008 will amount to 7112 billion rubles, in 2009 - 7797 billion rubles. General expenses in 2008 will amount to 6093 billion rubles, in 2009 - 6716 billion rubles.
The volume of the stabilization fund at the beginning of 2008 - 4194 billion rubles, at the beginning of 2009 - 5463 billion rubles.
In the article below, we will try to consider the multiplicative theory of public spending, which caused a lot of resonance and controversy at the time of the popularity of Keynesian teachings. The topic will be of interest to everyone who is not indifferent to the modern economy, because in the conditions of the shaky policies of various powers, it is more relevant than ever.
The role of the multiplier theory in modern economics
Often, a number of macroeconomic tools are used to enable a country to justify its policy in an economic sense. Government spending multipliers are one of the components of this wide list, therefore they have an impressive theoretical background. For several centuries, many scientists have tried to uncover the meaning of this concept and use it within the limits of practical application.
In its broadest sense, the multiplier shows an increase economic indicators. And Russia is no exception. Representatives of Keynesian macroeconomic doctrine approached this concept more deeply, and it was they who reached the conclusion that this tool shows a direct relationship between the dynamics of national wealth and the level of well-being of the country's population, regardless of the direction of the latter's fiscal policy.
Autonomous spending and multiplier
The state and the economy are closely interconnected, therefore it is no secret to anyone that any changes in one institution always entail a certain dynamics of individual values of another. This process can be called induction, since only a small push of any of the financial instruments generates a number of processes in the whole country.
So, for example, the autonomous spending of the state in the multiplicative theory is explained by the relationship with changes in the dynamics of the labor market. In other words, as soon as the government incurs certain costs in the context of some places of their occurrence, you can immediately observe a characteristic increase in the incomes of citizens. And, accordingly, an increase in employment. To obtain a quantitatively substantiated picture, it is enough to correlate the dynamics of these indicators with each other.
Investment costs
The structure of public spending is quite extensive, so it is worth paying due attention to the investment activity of the country, which is the basis of a healthy competitive economy.
The investment cost multiplier shows the ratio of the dynamics of the level of investments in a particular innovative business to the level of variable operating costs. At the same time, it is considered correct to take into account only the financial flows excluded from.
In other words, according to such a methodology, we will be able to track the level of expenditures incurred by the state in order to improve technological and scientific processes in the country, as well as their share in the overall economic flows. In general, there is nothing complicated in this dynamics - in the absence of investments, the level of consumption will be equal to zero, but with the growth of investments, it will increase.
Job market costs
The multiplier of government spending in terms of the labor market is a separate neo-Keynesian doctrine, which is difficult to compare with any other direction. Since, if earlier we positioned the total costs of the state as a secondary phenomenon, now let's see what it can entail in addition to the results we are used to.
Trite, but few manage to trace the following relationship. Employment market costs are significantly reduced at a time when investment costs are rising. It follows that the well-being of the population is increasing, and, accordingly, the demand for non-essential goods (appliances, clothing, furniture) is expanding, giving rise to a positive trend in the change in the income of their producers. In other words, investment in one area of the economy entails an increase in profits in another.
Fiscal costs of the country
Multiplier state taxes and expenditures in the fiscal aspect indicates the dynamics of changes in the level of output in the manufacturing sector, depending on the growth of the rate. As a rule, this coefficient is negative, since few business representatives want to give away part of their net profit in favor of budget shares.
It is another matter if we are talking, for example, about a differentiated tax on PE or personal income. In this case, the burden is imposed in stages - depending on the financial level of the object: the higher the welfare - the lower the rate. But, as modern practice shows, in a market economy, this theory is just a utopia, and has nothing to do with modern realities.
Balanced budget in general government spending
Public expenditure multipliers in their pure form show the dynamics of changes in the value of the gross national product, depending on how much of the state treasury was spent to purchase various types of products. Also this indicator is inversely proportional to the marginal consumer propensity of the population. This can be explained by such an increase in budget income, when, with a reduction in its expenditures, part of its profit is limited to the previous number of items.
Thus, one can derive the formula balanced budget: national spending can grow by a certain amount (let's call it A), which is caused by a cumulative reduction in the tax burden for entrepreneurs, and this, in turn, is fraught with an increase in the net profit of entrepreneurs by A units.
Foreign trade costs of the country
The public spending multiplier (the measurement formula varies depending on the key component, the dynamics of which we are trying to determine) also plays a significant role in the formation of an open economic policy. The latter is realized only through the use of export-import operations in practice. Therefore, we can say with confidence that foreign trade plays not the last, but rather a key role in the formation of costly items of state economic policy.
In the multiplicative theory, it is worth noting that the costs incurred by a country in order to implement export-import operations, aimed at indirectly interfering in the balance of another country, directly affect the value of the gross national product, which is a purely domestic instrument.
Thus, the value of the multiplier in terms of foreign trade is defined as the ratio between the quantitative changes in GNP and the costs of open transactions carried out outside the country.
conclusions
Based on the foregoing, one very entertaining conclusion suggests itself. We tried to prove that government spending multipliers fully reflect the relationship in changes in key financial instruments of government economic policy. And, probably, we succeeded quite successfully.
We were able to see that the balance of the budget is so shaky and susceptible to various elements of both domestic and country that we can say with full confidence: not a single process goes without a trace, and even more so autonomously. Government spending multipliers can always help us deduce the amount of growth in income, national product, and many other indicators that indicate the economic health of the state.
Government spending- these are the expenses of the state for the performance of its functions, as well as for the purchase of goods and services for its own consumption or regulation of demand in the markets of goods.
Government spending has a direct impact on national output and employment, along with household consumer spending and firm investment.
Government spending has a multiplier effect, which is determined through the indicator i the multiplier of government spending.
Government Spending Multiplier is the ratio of the increase in gross domestic (or national) product due to the increase in government spending:
where m g is the government spending multiplier;
ΔY is the absolute increase in the gross national product;
ΔG is the absolute increase in government spending;
MPC is the marginal propensity to consume.
The action of the government spending multiplier is displayed on the Keynesian cross chart (Fig. 15.3). If government spending increases by ΔG, then the planned spending curve shifts up by the same amount, the equilibrium point moves from position A to position B, and the equilibrium output increases from Y 1 to Y 2 by ΔY.
Rice. 15.3. Impact of government spending on national income
If the state increases its spending and does not change the amount of tax revenue, then there is an increase in GDP (GNV) several times, since government spending generates new rounds of consumer spending, which in turn will lead to a multiplier increase in investment.
Also, this multiplier is defined as the reciprocal of the marginal propensity to save, namely due to increased consumption by households.
State revenues and expenditures have a constant tendency to change and adjust, and, therefore, are under direct regulation and control by the state. The primary factors influencing this process are price increases, changes in the exchange rate and loan interest.
At the same time, the mechanism of state influence on the cyclical fluctuations of the economy makes it possible: during a recession, to increase government spending and thereby increase output, and during a boom, to reduce costs, protecting the economy from “overheating”.
The fiscal policy of the state reflects not only the impact on the national economy (national production) of changes in the amount of government spending, but also the effectiveness of the system for forming the revenue side of the budget, primarily through the mechanism of taxation.
GDP growth in a closed economy depends not only on consumer and government spending, investment, but also on tax revenues to the state budget.
Increasing tax revenues in market economy leads to an increase in national income, and by an amount greater than the initial increase in taxes. This phenomenon is characterized by the action of the tax multiplier:
where m T is the tax multiplier; ΔT is the change in tax revenues.
The effect of the tax multiplier is shown in Fig. 15.4.
Rice. 15.4. Impact of Tax Cuts on National Income
The influence of the state on the cyclical fluctuations of the national economy is also manifested in an increase or decrease in the tax burden on households and businesses. Reducing taxes for individuals leads to an increase in personal disposable income and, consequently, to an increase in consumption, which in turn will increase aggregate demand and, accordingly, supply. Tax cuts for enterprises are also a stimulus, as most of the profits remain at the disposal of companies, and the opportunity to increase investment increases (there is an increase in demand for investment goods).
Analyzing the formulas for the government spending multiplier and the tax multiplier, we can conclude that the former will always be greater than the latter by one. Consequently, the multiplier effect from an increase in government spending will always be greater than from tax cuts. This action must be taken into account when choosing fiscal policy instruments.
If government spending and taxes increase by the same amount, then the equilibrium output also increases. In this case, one speaks of balanced budget multiplier , which is always equal to or less than one.
The balanced budget multiplier does not assume the absolute elimination of any budget deficits or surpluses. We are talking about balancing changes in the revenue and expenditure parts of the budget, that is, maintaining the equality ΔT = ΔG.
Questions for self-control
1. Describe the functions of the budget system of society.
2. Name the main groups and subgroups of incomes of budgets of the Russian Federation.
3. Name the sections and subsections of the classification of budget expenditures in Russia.
4. Explain the structure of revenues of the consolidated budget of the Russian Federation in 2008 and 2011.
5. What is a tax, and what types of taxes, according to the current legislation of the Russian Federation, relate to federal taxes?
6. What types of taxes, according to the current legislation of the Russian Federation, are classified as regional and local taxes?
7. What dependence is reflected in the Laffer curve?
8. Conduct a cross-country comparison of tax rates.
9. What is a budget deficit? Name its main types.
10. Describe the mechanism for financing the budget deficit. Name the internal and external sources of its financing.
11. Name and explain the problems facing the state related to monetary and debt financing of the budget deficit.
12. Define fiscal (fiscal) policy. Name its main types.
13. What are the main goals and objectives of fiscal policy?
14. Explain the impact of government spending on national income.
15. Explain the mechanism of the tax multiplier.
16. What does the balanced budget multiplier show?
3.3. government spending multiplier.
So, government spending has a direct impact on the volume of national production and employment. Like investments, they also have a multiplier or multiplier effect, generating a chain of secondary, tertiary, etc. consumer spending, and also lead to a multiplier effect of the investment itself. Government Spending Multiplier shows the increase in GNP as a result of an increase in government spending on the purchase of goods and services:
GNP growth
Growth in government spending
Let's show the essence of this multi-effect. Let us assume that at a given level of consumption, investment, and government spending, the equilibrium state of the macroeconomy is reached at point E with a GNP of 60 billion rubles.
Rice. Government Spending Multiplier
Let the volume of government spending increase by 10 billion rubles, therefore, the straight line С + I + G shifts upwards by 10 billion rubles. Now the state of macroeconomic equilibrium will be reached at point E1, at which GNP is already 80 billion rubles. Thus, an increase in government spending by 10 billion rubles. led to an increase in GNP by 20 billion rubles. Based on this, we can say that the MRG in this case is equal to 2. In fact, the MRG in its model completely coincides with the investment multiplier. And if we proceed from the fact that MPC=1/2, then MPG= I /(I-MPC)=2. where MPC is the marginal propensity to consume. Each ruble spent by the state on the purchase of goods and services increased the GNP by 2 rubles, i.e., caused an increase in secondary expenditures in the national economy.
Thus, an increase in the volume of government purchases increases the equilibrium level of output. This mechanism of influence of government purchases on output suggests that during a downturn, government purchases can be used to increase output. Conversely, during a boom period, the government may reduce its spending levels, thereby reducing aggregate millet and output.
3.4. Action of fiscal policy in extreme situations: the liquidity trap and the classic case.
If the economy is in a liquidity trap, where the LM curve is horizontal, an increase in government spending has the maximum impact on the equilibrium level of income. The interest rate does not change, therefore, there is no inhibitory effect of the growth of government spending on national income.
Rice. liquid trap
The classic case and the effect of crowding out private investment. First, let's look at what the displacement effect is. . Crowding effect occurs when, as a result of expansionary fiscal policy, the interest rate rises to such an extent that private spending, especially investment, decreases. If the LM curve runs vertically, then an increase in government spending does not increase the equilibrium level of income, but only increases the interest rate.
An increase in government revenue shifts the IS curve to IS" but has no effect on income. If the demand for money is not susceptible to changes in the interest rate (as vertical LM implies), then there is a single level of income at which the money market is in equilibrium. Thus , an increase in government spending does not change the equilibrium level of income, but only increases the equilibrium rate of interest.But if government spending increases, and the level of income is unchanged, then this should be compensated by a decrease in personal income.The increase in the interest rate crowds out private investment. Crowding effect, precisely defining the meaning of this term, means a reduction in private spending (especially investment), in line with the rise in the rate of interest in the event of fiscal expansion. When the LM curve is vertical, the wipe effect will be maximum. The investment chart shows this. If the slope of the curve is more positive than vertical, the interest rate increases slowly under the influence of fiscal policy, and as a result, investment decreases slightly. The size of the crowding out effect thus depends on the slope of the LM curve and hence on the percentage dependence of the demand for money. If the economy is at full employment, then an increase in goods and services purchased by the government should mean that any other sectors are buying fewer goods and services in an amount equal to the highest level of government spending.
In an economy with underutilized resources, the full crowding out effect cannot be observed. If fiscal expansion increases the interest rate, then income will also increase. An increase in aggregate demand causes an increase in income, and with an increase in income, the saving rate increases. This expansion of savings makes it possible to finance the budget deficit without completely crowding out private investment.
With underemployment and, consequently, with the possibility of increasing output, the rate of interest may not increase, that is, there is no crowding out (which is true for the case when monetary authorities adjust financial expansion to an increase in the money supply).
Rice. Classic case
3.5. Balanced budget multiplier.
Taxes and government spending presuppose each other. Each is an economic lever affecting the growth of the gross national product. But the action of these levers is opposite, so the effects of their simultaneous use can cancel each other out. An increase in taxes suppresses the dynamics of GNP, and an increase in government purchases, creating additional demand, can lead to an increase in the supply of goods, i.e., to an increase in GNP. If the degree of influence of these levers is the same, then the effects of their application will be useless.
For the effective use of taxes and government spending, it is important to accurately determine the impact of each of them on the dynamics of GNP. To solve this problem, an analysis of the balanced budget multiplier is used, which represents a kind of vector of action of opposing forces - the tax multiplier and the government spending multiplier. Let's compare them with each other to find the balanced budget multiplier. To solve this problem, we assume that the amount of government spending and the amount of taxes collected are equal and equal to 20 units.
If the marginal propensity to consume (MPS) and the marginal propensity to save (MPS) are known, the multiplier effects can be determined. Let MPS be equal to 3:4, and MPS - 1:4.
An increase in government spending (G) will cause a chain reaction of growth in aggregate demand and an increase in GNP. In this example, an increase of 20 units will lead to an increase in GNP of 80 units, since the government spending multiplier MG is inversely proportional to the marginal propensity to save (if MPS = -1:4, then MC = 4).
The essence of the stabilization policy, constantly pursued by the government, is reduced to the impact of the state on aggregate demand and (or) aggregate supply in order to maintain their dynamic balance at the desired values of employment, price level and income. The main goal of the state economic policy is keeping the economy at full employment. This guarantees the absence of unemployment and inflation.
The modern market economy, with all the variety of its models, is characterized by a socially oriented economy, which is supplemented by state regulation.
Execution of functions state regulation impossible without the centralization of the funds needed for:
- maintaining the social sphere and social protection of the population(health care, development of culture, payments wages budget institutions, pensions and benefits, financing of preschool institutions, financial support for the poor, etc.);
- development of priority areas of the economy(financing of research and development, support for the agro-industrial complex, redistribution of funds between sectors of the national economy, etc.);
- ensuring the defense and security of the state(maintenance of the army, financing of the military-industrial complex);
- support of international relations(contributions to international organizations to ensure the participation of the state in them, etc.).
To perform all these functions, the government of the country develops and implements a fiscal (or fiscal) policy that combines measures to form an integral structure of the budget system and tax system states.
fiscal policy(from lat. fisc - tax) - a set of government measures to levy taxes and spend state budget funds to achieve macroeconomic equilibrium at the level of full employment in the absence of inflation.
Keynesian theory considers this policy as the most effective instrument of state influence on economic growth, employment and price dynamics, because. the state does not express private interests, like firms and households, but public ones. In the Keynesian model of economic equilibrium, the stabilizing role of fiscal policy is related to its impact on the equilibrium GNP (NNP, NI) through changes in total spending (aggregate demand).
Fiscal policy includes only such manipulations of the budget that are not accompanied by a change in the amount of money in circulation.
Fiscal policy consists of discretionary and automatic.
Discretionary fiscal policy (Latin discrecio - acting at its discretion) is a conscious change in taxes and government spending by the government in order to achieve macroeconomic equilibrium at full employment in the absence of inflation.
The main instruments of this policy are:
1. Change in the volume of public procurement of goods and services ( G).
2. Change in the amount of income tax (T).
The nature of discretionary fiscal policy is greatly influenced by the state of the economy; at different phases of the economic cycle, this policy uses different tools (Fig. 8.1).
Rice. 8.1. State economic policy during periods of recession (a) and lifting (b)
During the period economic downturn(insufficient demand) carried out stimulating discretionary policy ( fiscal expansion policy, expansionist), which consists of an increase in government spending and tax cuts, which prevents a fall in production and is aimed at increasing aggregate demand. The task of the state economic policy during an economic downturn(see Fig. 8.1, a) - to achieve an increase in production Y* up to potential level Y 1 and achieving full employment through increased planned spending ( AE- aggregated expenses).
During the period of economic recovery (excess demand) deterrent (restrictive) fiscal policy aimed at reducing aggregate demand by reducing government spending and (or) increasing taxes. The task of the state economic policy during the economic boom(see Fig. 8.1, b) - to achieve a decrease in production Y* up to potential level Y 1 and eliminate excess employment by reducing planned spending ( AE).
It is also often used combined fiscal policy, which is the use of both instruments simultaneously.
By influencing aggregate demand in this way, discretionary fiscal policy influences the equilibrium output in the country. This influence is multiplier and is measured using multipliers public spending(purchases), taxes and balanced budget.
Government Spending Multiplier (m G) - the ratio of the change in equilibrium output and income to the change in the value of public purchases of goods and services, showing how many times the final increase in total income exceeds the initial increase in public purchases of goods and services that caused it.
Let's consider this multiplicative effect on the example of a stimulating fiscal policy (Fig. 8.2).
Rice. 8.2. Government Spending Multiplier Effect
Increase in government purchases of goods and services by ?G shifts the function of planned expenses AE upwards and shifts the equilibrium point from position 1 to position 2. A change in government spending has a clearly multiplier effect, since the final increase in planned spending ?AE and total income ?Y more than the original increase in government purchases ?G.
During the economic rise in order to reduce the volume of production and employment, government purchases of goods and services are reduced. Then the amount of planned expenditures is reduced by the amount of reduction in public procurement of goods and services ?G. At the same time, output and total income are reduced by more than ?G due to the multiplier effect (see Fig. 8.2 - reverse transition from point 2 to point 1).
Its calculation formula is similar to the investment multiplier:
This is proved algebraically for a three-sector economy (with state participation). At the point of balance Y = AE = C + I + G = (a + MPC*Y) + I + G. Let's solve this equation for Y:
Hence it is obvious that .
Since MRS< 1, то мультипликатор государственных закупок всегда больше единицы.
It should be noted that exactly the same multiplier effect gives an increase in any component of autonomous spending (see topic 5)
The economic meaning of the government spending multiplier. With an increase in government spending, planned total spending increases by ?G. In response, the output will increase by the same amount, and hence the total income: ?Y 1 = ?G (?Y 1 is the primary increase in total income.
The growth of total income will, in turn, cause an increase in consumer (and with them total) planned spending on MRS * ?Y 1. Due to this, the volume of production, and hence the total income, will increase by the same amount: ?Y 2 = ?Y 1 * MPC = ?G*MPC (?Y2- this is a secondary increase in total income, etc.).
A new increase in income will cause a new increase in consumer (and with them total) planned expenditures, now by MRS *? Y 2 .
Then the volume of production, and hence the total income will increase as follows:
?Y 3 \u003d ?Y 2 * MPC \u003d (? Y 1 * MPC) * MPC \u003d (? G * MPC) * MPC etc. to infinity.
In general:
?Y n \u003d? Y n -1 * MPC \u003d? G * MPC n -1.
Consequently, an increase in public procurement leads to a multiple (multiplicative) expansion of total income and planned expenditures.
Tax multiplier (m T) - the ratio of the change in equilibrium output to the change in tax revenues, showing how many times the final increase in total income exceeds the initial change in the volume of income taxes.
With income taxation, disposable income for consumption and savings becomes less than total income by the amount of taxes collected. The consumption function takes the form: .
During an economic downturn, income taxation is reduced in order to increase output and employment. At the same time, the disposable income of households increases, and their consumer demand increases. Then the volume of planned expenditures will increase, and the volume of production and total income will also increase, and more than by the amount of tax cuts due to the action tax multiplier.
A graphic representation of the effect of the tax multiplier in the implementation of an expansionary fiscal policy is shown in Fig. 8.3.
Rice. 8.3. Tax multiplier effect
Reducing income taxes on ?T increases household disposable income by the same amount ( ?Yd = -?T). This increase in disposable income will be used to increase savings by MPS*?Y d = -MPS*?T and to increase consumption by the amount MPС*?Y d = -MPС*?T. As a result, the function of planned expenses will shift up by the amount MPС*?T and the equilibrium point will shift from position 1 to position 2. A change in income taxation has a multiplier effect, since the final increase in planned expenditures ?AE and total income ?Y modulo greater than the original income tax cut ?T.
The tax multiplier is always less than the government spending multiplier, since when taxes change, consumption changes partially (part of disposable income is used for savings), while each unit of increase in government spending has a direct impact on output and income.
That's why:
The minus sign indicates the negative impact of tax increases on output and income.
This is also proved algebraically. At the equilibrium point, the equality takes place Y = C + I.
Let's introduce the consumption function taking into account taxation:
Let's solve this equation for Y:
Hence it is obvious that
Where is the tax multiplier.
The modulo tax multiplier can be both greater and less than one, but in any case, modulo it is less than the public procurement multiplier according to (8.2).
During the period of economic recovery, in order to reduce the volume of output and employment, an increase in the level of income taxation is carried out. Then the volume of planned expenses will decrease by the amount? T*MRS. At the same time, the volume of production and total income are reduced modulo more than by? T due to the action of the tax multiplier (see Fig. 8.3 - the reverse transition from point 2 to point 1).
The economic meaning of the tax multiplier. The reasoning is largely similar to the derivation of the public procurement multiplier. By reducing income taxation by ?T planned expenses increase by - ?T*MRS. In response, the volume of production will increase by the same amount, and hence the total income: ?Y 1 \u003d -? T * MRS. Further development of the process of multiplier expansion of planned expenditures and total income will occur in the same way as in the case of an increase in government purchases.
In general:
?Y n \u003d? Y n -1 * MPC \u003d-? T * MPC n.
At the end of the process of multiplier expansion of income, the total increase in total income will be (according to (5.8)):
Consequently, the reduction in income taxation also leads to a multiple (multiplicative) expansion of total income and planned expenditures.
The simultaneous effect of a change in government spending and income taxes on the change in output and total income is represented by the following formula:
Balanced budget multiplier shows that equal increases in government spending and taxes lead to an increase in equilibrium output by the amount of their increase (this is obvious from (8.3)). A change in government spending has a stronger effect on total spending than a change in taxes of the same magnitude. Government spending has a direct and direct effect on total spending, while a change in the amount of taxes affects it indirectly through a change in after-tax income, which changes the amount of consumer spending. It is always equal to 1 (such as ), which is equivalent to the absence of multiplicative effects. That's why observance of the budget balance rule sharply reduces the effectiveness of fiscal policy.