Government Finances (terminology)
Definitions are given at the bottom of the page, if there are any terms that you may not understand, you can try your luck there.
Central Government
Since an expansionary fiscal policy involves raising government expenditure and/or lowering taxes, this has the effect of either increasing the budget deficit or reducing the budget surplus. A budget deficit in any one year is where central government's expenditure (including benefits) exceeds its revenue from taxation. A budget surplus is where tax revenue exceed central government expenditure.
For the most of the last fifty years, governments around the world have run budget deficits. In recent years, however, many countries, the UK included, made substantial efforts to reduce their budget deficits, and some achieved budget surpluses for periods of time. The position changed dramatically in 2008 - 2009, however, as governments around the world increased their expenditure and cuts taxes in an attempt to stave off recession.
To finance a deficit, the government will have to borrow.
For the most of the last fifty years, governments around the world have run budget deficits. In recent years, however, many countries, the UK included, made substantial efforts to reduce their budget deficits, and some achieved budget surpluses for periods of time. The position changed dramatically in 2008 - 2009, however, as governments around the world increased their expenditure and cuts taxes in an attempt to stave off recession.
To finance a deficit, the government will have to borrow.
- Issuing of bonds
- Issuing of Treasury Bills
This will lead to an increase in the money supply to the extent that the borrowing is from the banking sector. The purchase of bonds or Treasury bills by the (non-bank) private sector, however, will not lead to an increase in the money supply
The national debt
The budget deficit refers to the debt that the government incurs in one year. If the government runs persistent deficits over many years, these debts will accumulate. The accumulated debt is known as the national debt. Note that the national debt is not the same thing as the country's overseas debt. In UK, only a relatively small fraction of national debts is owed overseas. The bulk of it is owed to the residents. In other words, the government finances its budget deficits largely by borrowing at home and not from abroad.
General Government
'Central Government' includes the central and local government. Thus we can refer to general government deficits and surpluses and general government debt.
The public sector
The public sector consists of central government, local government and public corporations.
Total public expenditure
Difference between current and capital expenditure. Current expenditure include wages and salaries of the public-sector staff, administration and the payments of welfare benefits. Capital expenditures give rise to a stream of benefits over time. Examples include expenditure on roads, hospitals and schools.
Difference between final expenditure on goods and services and transfers. This distinction recognises that the public sector directly adds to the economy's aggregate demand through its spending on goods and services, including the wages of public sector workers, but also that it redistributes incomes between individuals and firms. Transfers include subsidies and benefit payments such as payments to the unemployed.
Difference between final expenditure on goods and services and transfers. This distinction recognises that the public sector directly adds to the economy's aggregate demand through its spending on goods and services, including the wages of public sector workers, but also that it redistributes incomes between individuals and firms. Transfers include subsidies and benefit payments such as payments to the unemployed.
The PSNCR
If the public sector spends more than it earns (through taxes and the revenues of public corporations), the amount of this deficit is known as the public-sector net cash requirement (PSNCR). It is defined as public-sector expenditure minus the public-sector receipts. If the public sector runs a deficit in the current year of, say, US$ 1 billion, then it will have to borrow US$ 1 billion in money this year on order to finance it. If the public sector runs a surplus (A negative PSNCR), it will be able to repay some of the public-sector debts that have accumulated from previous years.
Definitions
Budget Deficit - The excess of central government's spending over its tax receipts
Budget Surplus - The excess of central government's tax receipts over its spending
National Debt - The accumulated budget deficits (less surpluses) over the years: the total amount of government borrowing
General Government Deficit (or surplus) - The combined deficit (or surplus) of central and local government
General government debt - The combined accumulated debt of central and local government
Current Expenditure - Recurrent spending on goods and factor payments
Capital Expenditure - Investment expenditure; expenditure on assets
Final Expenditure - Expenditure on goods and services. This is included in GDP and is part of aggregate demand
Transfers - Transfers of money from taxpayers to recipients of benefits and subsidies. They are not an injection into the circular flow but are the equivalent of a negative tax
PSNCR - The annual deficit of the public sector, and thus the amount that the public sector must borrow
Budget Surplus - The excess of central government's tax receipts over its spending
National Debt - The accumulated budget deficits (less surpluses) over the years: the total amount of government borrowing
General Government Deficit (or surplus) - The combined deficit (or surplus) of central and local government
General government debt - The combined accumulated debt of central and local government
Current Expenditure - Recurrent spending on goods and factor payments
Capital Expenditure - Investment expenditure; expenditure on assets
Final Expenditure - Expenditure on goods and services. This is included in GDP and is part of aggregate demand
Transfers - Transfers of money from taxpayers to recipients of benefits and subsidies. They are not an injection into the circular flow but are the equivalent of a negative tax
PSNCR - The annual deficit of the public sector, and thus the amount that the public sector must borrow