Which Of The Following Best States The Purpose Of A Government Subsidy? (Best solution)

Which of the following is considered a subsidy?

  • Any financial benefit, whether cash or tax cuts, given by the government to businesses or government organizations is considered a subsidy. Subsidies are given to help companies reduce their costs of doing business. In doing so, the government helps boost certain sectoral activities for the economy. Oil.

What is the purpose of government subsidies?

Government subsidies help an industry by paying for part of the cost of the production of a good or service by offering tax credits or reimbursements or by paying for part of the cost a consumer would pay to purchase a good or service.

What is the purpose of government subsidies quizlet?

Governments grant subsidies to encourage the consumption and production of socially beneficial goods such as vaccinations. Governments grant subsidies to support a producer or industry by lower their production costs and increasing their revenue.

What is an example of a government subsidy?

Examples of Subsidies. Subsidies are a payment from government to private entities, usually to ensure firms stay in business and protect jobs. Examples include agriculture, electric cars, green energy, oil and gas, green energy, transport, and welfare payments.

Where do government subsidies come from?

Subsidies are provided by both federal or national governments and local governments. The United States is technically a free market, but direct subsidies provided by the U.S. government influence market prices and economic growth greatly.

What is economic subsidy?

Key Takeaways. A subsidy is a direct or indirect payment to individuals or firms, usually in the form of a cash payment from the government or a targeted tax cut. In economic theory, subsidies can be used to offset market failures and externalities to achieve greater economic efficiency.

What sort of subsidies did the US government provide quizlet?

Four types of subsidies that the government provides for businesses: tax incentives, government loans, free services, direct cash payments. 2.

Why did European governments pay subsidies to new industries?

Why did European governments pay subsidies to new industries? Industries produced goods that could be exported and make the balance of trade more favorable. What is a favorable balance of trade?

Which of the following are the effects of a subsidy to producers quizlet?

Which of the following are the effects of a subsidy to producers? The quantity of the product increases to the economically optimal quantity, eliminating the underallocation of resources. The supply curve shifts to the right because of an increase in supply. The subsidy reduces the marginal cost of producing the good.

What are the 4 main types of subsidies?

Subsidies come in various forms including: direct (cash grants, interest-free loans) and indirect (tax breaks, insurance, low-interest loans, accelerated depreciation, rent rebates). Furthermore, they can be broad or narrow, legal or illegal, ethical or unethical.

What is the most subsidized industry in the United States?

While many industries receive government subsidies, three of the biggest beneficiaries are energy, agriculture, and transportation.

Which best describes what a subsidy does?

Which best describes what a subsidy does? It keeps the price of domestic goods relatively low. What purpose do financial incentives serve? They act as trade barriers.

How do you get a government subsidy?

Want to Avail Government Subsidies? Provide Aadhaar and Get it Easily

  1. Direct Benefit Transfer (DBT)
  2. Pradhan Mantri Ujjwala Yojana.
  3. Emeritus Fellowship.
  4. Pradhan Mantri Awas Yojana – Gramin (PMAY-G)
  5. Cash Transfer of Food Subsidy Rules, 2015.
  6. Aam Aadmi Bima Yojana.
  7. Maternity Benefit Programme.

What is subsidy and its types?

In most common parlance, Subsidy means grant. The various forms of subsidy include direct subsidies such as cash grants, interest-free loans; indirect subsidies such as tax breaks, premium free insurance, low-interest loans, depreciation write-offs, rent rebates etc.

How Do Government Subsidies Help an Industry?

Governmentsubsidieshelp an industry by covering a portion of the cost of producing a good or service by offering tax credits or reimbursements, or by covering a portion of the cost a consumer would pay to purchase a good or service. Tax credits and reimbursements are two types of government subsidies.

Effect of Subsidies on Supply

Governments are attempting to establish subsidies in order to stimulate production and consumption in certain sectors. When government subsidies are provided to suppliers, an industry is able to increase the amount of products and services produced by its manufacturers. Increased overall supply of that item or service results in increased demand for that good or service, which results in a decrease in the overall price of that good or service. Therefore, when the government provides subsidies to the provider, the result is a win-win scenario for both the supplier and for the customer as a whole.

Meanwhile, customers benefit from the product at a lower cost than would otherwise be the case since suppliers do not have to charge outrageous prices in order to break even on the manufacturing costs they incur.

Tax Credits

Government subsidies, which are generally in the form of tax credits, can assist potential customers with the cost of a commodity or service on the consumer side. For example, the move to more renewable sources of energy is a fantastic illustration of this concept. Due to the fact that green economic models are still in their infancy, there is currently little demand for new energy-saving technologies. Government subsidies or tax credits may be used to affect consumer interest in adoption by alleviating the high expense associated with adoption.

This means that consumer-targeted subsidies will not necessarily boost supply since producers will not be motivated or paid to create more as a result of the subsidies.

The purchase of an electric or hybrid car may also be eligible for a tax credit or subsidy in some states, in the same spirit.

The Bottom Line

Government subsidies may benefit an industry on both the supplier and consumer sides, regardless of which end of the supply chain they are put on first. Governments must either raise taxes or reallocate money from current budgets in order to launch subsidization programs. There is also the idea that incentives in the form of subsidies actually work to the detriment of enterprises’ efforts to minimize their operating expenses.

In reality, government intervention in market economics has tangible consequences for both consumers and suppliers alike, whether it be expanding supply through supplier-side subsidies or assisting consumers with high adoption costs through tax credits.

Subsidy Definition

A subsidy is a benefit that is provided to an individual, business, or institution, and is generally provided by the federal government. It can be either direct (as in cash payments) or indirect (as in credit card payments) (such astax breaks). It is customary for a subsidy to be provided in order to relieve some form of burden, and it is frequently deemed to be in the general public’s best interests when it is provided to promote a social good or an economic policy.

Key Takeaways

  • A subsidy is a direct or indirect payment made to individuals or businesses by the government, which is typically in the form of a cash transfer or a targeted tax reduction. Subsidies, according to economic theory, can be used to compensate for market failures and externalities in order to achieve higher economic efficiency. But opponents of subsidies point to difficulties in estimating appropriate subsidies, dealing with unexpected expenses, and avoiding political incentives from making subsidies more costly than they are useful.

Understanding Subsidy

A subsidy is typically some type of payment made to an individual or corporate organization that is receiving it, whether it is delivered directly or indirectly. Subsidies are often regarded as a special sort of financial assistance because they relieve the recipient of an associated burden that had previously been imposed on him or her, or because they encourage a certain conduct by giving financial support. Subsidies have an opportunity cost associated with them. Consider the agricultural subsidies provided during the Great Depression: it had highly apparent impacts, with farmers reporting increased earnings and the hiring of extra staff.

Money from the subsidies had to be deducted from individual income tax returns, and customers were stung a second time when food costs rose at the supermarket.

Types of Subsidies

Subsidies are often used to benefit specific sectors of a country’s economy. If it can alleviate the pressures put on faltering sectors, it can also promote new advances by giving financial assistance for their initiatives. Frequently, these regions are not adequately supported by the operations of the main economy, and they may even be undermined by activity in other economies.

Direct vs. Indirect Subsidies

Direct subsidies are those that entail the direct payment of monies to a specific individual, organization, or industry. They are also known as direct payments. Those that have no preset monetary value or that do not entail real financial outlays are referred to as indirect subsidies. They can include initiatives like as price reductions for essential products and services, which can be funded by the government, among other things. This permits the necessary commodities to be acquired at a lower cost than the current market rate, resulting in savings for individuals who are intended to benefit from the subsidy.

Government Subsidies

The government provides a wide range of subsidies to a wide range of industries. Individual subsidies include welfare payments and unemployment benefits, which are two of the most popular kinds of financial assistance. The purpose of these forms of subsidies is to provide assistance to persons who are experiencing temporary economic hardship. With the passage of the Affordable Care Act (ACA), a number of U.S. families were eligible for subsidies depending on their family income and size. Other types of subsidies, such as discounted interest rates on student loans, are provided to encourage people to pursue their education.

In these instances, the funds associated with the subsidies are transferred directly to the insurance company to which premium payments are due, resulting in a reduction in the amount of money that must be paid by the household.

History has shown that agricultural subsidies, financial institutions subsidies, oil company subsidies, and utility company subsidies have accounted for the great bulk of subsidies in the United States.

Advantages and Disadvantages of Subsidies

Public subsidies are justified on a variety of grounds: some are economic in nature, others are political in nature, and still others derive from socio-economic development theories. In accordance with development theory, certain industries require protection from foreign competition in order to maximize domestic advantage. Technically speaking, a free market economy is one that is devoid of subsidies; the introduction of a subsidy changes a free market economy into a mixed economy. Economics and politicians frequently dispute the advantages of government subsidies, and by extension the extent to which a mixed economy should be allowed to exist in a given country.

Advantages

Pro-subsidy Economists say that providing subsidies to certain industries is essential for assisting in the support of firms and the employment they produce. The mixed economy is supported by economists who think that subsidies are justified in order to offer the socially optimal level of goods and services, which will lead to economic efficiency as a result of the mixed economy. In modern neoclassical economic models, there are instances in which the real supply of an item or service goes below the theoreticalequilibriumlevel, resulting in an undesired shortage and what economists refer to as a market failure.

  1. The subsidy decreases the cost of bringing the item or service to market for the producers who receive it.
  2. In other words, according to general equilibrium theory, subsidies are required when a market failure results in an insufficient amount of output in a particular area of the country.
  3. Some claim that commodities or services produce what economists refer to as “positive externalities,” which are beneficial to the economy.
  4. However, because the third party is not a direct participant in the decision, the activity will only take place to the degree that it directly helps those who are directly engaged, leaving potential societal benefits on the table as a result of this.
  5. The inverse of this type of subsidy is the imposition of a charge on activities that generate negative externalities.

This is a common approach that is now being used in China and other South American countries.

Disadvantages

Other economists, on the other hand, believe that free market forces should determine whether a company survives or fails. Even if it fails, the resources are redeployed to a more efficient and lucrative application. It is their contention that subsidies to these enterprises just serve to maintain an inefficient allocation of scarce resources. Subsidies are viewed with suspicion by free market economists for a variety of reasons. Many people believe that government subsidies needlessly distort markets, limiting efficient results and diverting resources away from more productive applications and onto less productive ones.

  1. Official expenditure on subsidies, according to some critics, is never as successful as government predictions indicate it would be.
  2. Another issue, as critics point out, is that the act of subsidizing contributes to the corruption of the democratic process.
  3. Companies frequently seek protection from the government in order to protect themselves from competition.
  4. Even if a subsidy is introduced with the best of intentions, without any hint of conspiracy or self-interest, it increases the earnings of those who benefit from it, creating an incentive to fight for its continuation long after the necessity or utility of the subsidy has passed.
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Special Considerations

There are a number of different metrics that may be used to assess the success of government subsidies. Most economists regard a subsidy to be a failure if it does not result in a general improvement in the economy. Policymakers, on the other hand, may still deem it a success if it aids in the achievement of a different goal. Despite the fact that most subsidies are long-term failures in the economic sense, they nonetheless accomplish cultural or political objectives. When it comes to the Great Depression, we may see an illustration of these opposing assessments.

  • Their policy objective was to keep food prices from dropping further and to safeguard small farmers from being harmed.
  • However, the economic ramifications were completely different.
  • Those who did not work in the agricultural business fared badly in terms of absolute economic well-being.
  • Subventions for renewable (non-oil-based) energy sources totaled more than $60 billion in the United States Department of Energy (DOE) fiscal years 2012 and 2013.
  • The receiving firms, on the other hand, were unable to generate a profit, and oil prices fell in 2014.

People who directly or indirectly benefit from subsidies tend to be the greatest supporters of them, and the political motivation to “bring home the bacon” to ensure support from special interests is a potent magnet for politicians and policymakers alike to support them.

Wha is the difference between direct and indirect subsidies?

Direct subsidies are those that entail the direct payment of monies to a specific individual, organization, or industry. They are also known as direct payments. Those that have no preset monetary value or that do not entail real financial outlays are referred to as indirect subsidies. These can include efforts like as price reductions for essential products and services, which can be funded by the government in some cases.

What is the position of subsidy advocates?

Subsidies are available in mixed-income societies. Proponents say that providing subsidies to certain industries is critical to assisting in the support of businesses and the employment they generate. They also argue that subsidies are appropriate in order to offer the socially optimal level of goods and services, which will result in greater economic efficiency in the long run.

What is the position of subsidy opponents?

Subsidies are prohibited in a free market economy, at least on a technical level. If a firm survives or fails, opponents of government subsidies believe that market forces should be the determining factor. If it fails, those resources will be redistributed to a more efficient and profitable use in the future. They contend that subsidies unduly distort markets by diverting resources away from more productive applications and onto less productive ones, so preventing efficient outcomes from occurring.

What Are the Major Federal Government Subsidies?

Subsidies are prohibited in a free market economy, at least on a theoretical level. If a firm survives or fails, opponents of government subsidies believe that market forces should be the deciding factor. It will be redirected to a more efficient and lucrative use if it does not meet its objectives. As a result of the diversion of resources from more productive applications to less productive ones, they claim that subsidies unduly distort markets, impeding efficient results.

  1. Subventions in the form of cash, such as the grants described above
  2. Tax breaks, such as exemptions, credits, and deferrals are available. Risk-bearing arrangements, such as loan guarantees
  3. Purchase policies adopted by the government that pay a premium above the free-market price
  4. Acquisition of stock in order to keep a company’s stock price higher above the market average

All of them are seen as subsidies since they lower the cost of conducting business in some way.

Farm Subsidies

Getty Images (Photo courtesy of Elly Lange). Many analysts believe that American farmers don’t even require government assistance. After all, they are situated in one of the most advantageous geographical zones on the planet. Rich soil, plentiful rainfall, and access to rivers for irrigation when the rains don’t come are all advantages of this region. Farms now enjoy all of the advantages of running a contemporary company. They have highly qualified workers, sophisticated equipment, and cutting-edge chemical research in the fields of fertilizers and seeds on their side of the fence.

  • Actually, agricultural subsidies were originally established to assist farmers who had been devastated by the Dust Bowl and the Great Depression of 1929.
  • The federal government ensured that farmers would get a price that was high enough for them to stay profitable.
  • It compensated farmers in order to ensure that supply did not exceed demand.
  • It also purchased any surplus crops.
  • The majority of the subsidies went to grain producers who grow crops such as maize, wheat, and rice.
  • By 1999, farm subsidies had reached an all-time high of $22.5 million dollars.
  • Approximately 15 percent of this was deemed inefficient, unneeded, or repetitive.

More than 6 percent of this amount was spent on four “junk food” ingredients: corn syrup, high-fructose corn syrup, corn starch, and soy oils, among others.

“Do maize producers require government subsidies?” several politicians wondered during the recession as they sought for ways to slash the federal budget.

Corn was anticipated to be grown on 94 million acres in 2012, according to the USDA.

By 2017, huge farms controlled the majority of the industry.

That was the case for only 4% of all farm operations.

In order to produce more food for a lower price, they depended on economies of scale.

Farm subsidies, including the $5 billion direct payment scheme, were planned to be decreased by 22 percent in the 2012 federal budget.

The richest 10 percent of farmers got 77 percent of all agricultural subsidies between 1995 and 2016.

The Deline Farms Partnership, which got $4 million in 2016, was the most generous of the 2016 recipients.

The House budget also suggested $180 billion in changes to the agriculture subsidy program, which would be implemented in the next fiscal year. Instead of farmers, the food stamp program was hit with a $133 billion budget decrease, hitting 8 million customers rather than farmers.

Oil Subsidies

(Image courtesy of David McNew / Getty Images.) Obama advocated for the abolition of the $4 billion in oil sector subsidies in March 2012, and the administration agreed. According to some estimates, the true quantity of oil sector subsidies is greater, ranging between $10 and $40 billion per annum. Profits from the oil industry increased at the same time as oil prices hit a record high of $145 per barrel in 2008. Subsidies to the oil sector have a lengthy history in the United States of America.

The Deep Water Royalty Relief Act, passed by Congress in 1995, provides compensation for deep water royalties.

Since oil was just $18 a barrel at the time, this supported the costlier manner of extraction.

It asserted that this may no longer be necessary now that deepwater extraction has shown to be economically beneficial.

  • Tax Breaks for Volumetric Ethanol Excise Tax Credit – $31 billion
  • Intangible Drilling Costs – $8.9 billion
  • Oil and Gas Royalty Relief – $6.9 billion
  • Percentage Depletion Allowance – $4.327 billion
  • Refinery Equipment Deductions – $2.3 billion
  • Geological and Geophysical Costs Tax Credit – $698 million
  • Ultradeepwater and Unconventional Natural Gas and other Petroleum Resources R D – $230

Volumetric Ethanol Excise Tax Credit – $31 billion; Intangible Drilling Costs – $8.9 billion; Oil and Gas Royalty Relief – $6.9 billion; Percentage Depletion Allowance – $4.327 billion; Refinery Equipment Deductions – $2.3 billion; Geological and Geophysical Costs Tax Credit – $698 million; Ultradeepwater and Unconventional Natural Gas and other Petroleum Resources R D – $230 million; Passive

  • The Strategic Petroleum Reserve
  • Defense expenditures that include military operations in oil-rich nations in the Persian Gulf
  • And other such expenditures The building of the federal highway system in the United States, which favors the use of gas-powered automobiles

These federal government operations, according to the Bureau of Economic Analysis (BEA), are being carried out in order to defend national security rather than to promote specific activities within the oil business. Even while the intention was not to explicitly support the industry, it is possible that they did so inadvertently assist it.

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Ethanol Subsidies

Costco members may fill up their petrol tanks at the gas stations operated by the wholesale corporation. Orjan F. Ellingvag/Dagens Naringsliv/Corbis/Getty Images contributed this photo. Between 1979 and 2010, the maize business got federal subsidies totaling $20 billion. The United States Congress desired to convert output towards ethanol, which is a component of gasoline. The incentives were intended to assist producers in meeting the requirements of a 2005 federal law that mandated the production of 7.5 billion gallons of renewable fuel by 2012.

  • In 2011, just 6.25 billion gallons of gasoline were produced.
  • Producers of ethanol would have preferred to see a bigger credit of $1.10 per gallon of ethanol remain in place.
  • When the corn subsidies expired in 2012, ethanol producers were left with a bit of an excess of product on their hands.
  • After a while, the surplus was absorbed.
  • Growing markets, such as Brazil, were unable to keep up with the demand for ethanol in their own countries.
  • When the practice of converting grain into gasoline became contentious in 2008, it was attributed to the rise in food costs.
  • That was only one of the factors contributing to the high price of corn and other commodities.
  • The use of corn as fuel, according to many experts, is a bad use of natural resources at a time when 60 percent of the world’s population is hungry.

Even if all of the maize grown in the United States were turned to ethanol, it would only be enough to supply 4 percent of the country’s total energy requirements. (For more information, see “Ethanol Subsidy Ends, But There’s More,” MSNBC.com, December 29, 2011.)

Housing Subsidies

(Image courtesy of Justin Sullivan / Getty Images.) Subsidies for housing encourage homeownership while also assisting the building sector. They generate around $15 billion in revenue every year. Interest rate subsidies and down-payment assistance are the two types of housing subsidies available. The mortgage interest deduction on federal income taxes is the most significant source of interest rate subsidies. There are also some minor interest discounts available to help low-income families lower their monthly mortgage payments.

  • In 2008, this amount amounted to $10.9 million.
  • When compared to the amount of money the federal government spent to maintain its Federal Housing Administration mortgage loan guarantee program, these direct homeowner subsidies paled in comparison.
  • Fannie Mae and Freddie Mac served as a secondary market for the purchase of these mortgages from financial institutions.
  • As a result, the federal government was compelled to spend up to $100 billion to bail out Fannie and Freddie Mac.
  • Was the bailout a subsidy in disguise?
  • If not for it, there would have been no housing activity at all in the aftermath of the subprime mortgage meltdown.
  • In the United States, the agencies took over the function that had previously been played by the private sector in the home mortgage market.

Other Subsidies

The Cash for Clunkers program provided financial assistance to automobile buyers and assisted in the growth of new car sales. (Image courtesy of Bill Publiano / Getty Images.) The federal government of the United States provides a plethora of subsidies that it believes would benefit the economy. According to the Bureau of Economic Analysis, the Cash for Clunkers program in 2009 provided a subsidy to automobile dealers. A federal subsidy of up to $4,500 was made available to dealers that offered a discount on a new vehicle to customers who traded in an old one.

The purpose was to jump-start the economy after it had been hit by a severe downturn.

Obamacare Subsidies

The Cash for Clunkers program provided financial assistance to automobile buyers and assisted in the growth of new car sales in the United States. Getty Images (Photo courtesy of Bill Publiano). Many more subsidies are being offered by the federal government of the United States in the hopes of boosting the economy. According to the Bureau of Economic Analysis, the Cash for Clunkers program in 2009 provided a subsidy to auto dealers. A federal subsidy of up to $4,500 was made available to dealers that offered a discount on a new vehicle to customers who traded in an old one.

The scheme was implemented in 2008. In order to get the economy moving again after the recession, the objective was to increase the supply of capital. Moreover, it sought to encourage Americans to purchase more fuel-efficient automobiles, so reducing the United States’ dependency on imported oil.

Finance & Development

FinanceDevelopment Mark Horton and Asmaa El-Ganainy have collaborated on a project. Stable and sustainable growth is promoted by governments via the use of their spending and taxing authorities. It’s pelting us with money. (Image courtesy of Matt Cardy/Getty Images) In economics, fiscal policy refers to the employment of government spending and taxation to exert influence on the market. Fiscal policy is often used by governments to foster robust and sustained growth while also reducing poverty.

In a communiqué issued following their meeting in London in April 2009, leaders from the Group of 20 industrialized and developing market nations said that they were embarking on a “historical, unprecedented, and deliberate fiscal growth strategy.” When they talked of fiscal expansion, what did they mean exactly?

History has shown that fiscal policy has had a cyclical relationship with the importance of other policy tools.

Policymakers pushed for governments to take an even more active role in the economy following the stock market crash and the Great Depression.

How does fiscal policy work?

The use of monetary policy and fiscal policy are the two primary weapons that policymakers may use to impact the economy when trying to influence the economy. Through adjustments to interest rates, bank reserve requirements, and the purchase and sale of government securities and foreign exchange, central banks are able to indirectly target activity. Governments have an impact on the economy through altering the quantity and types of taxes levied, the extent and composition of government spending, and the degree and form of borrowing available.

  1. The following fundamental equation of national income accounting, which quantifies the production of an economy (orgross domestic product (GDP)) in relation to expenditures, may be used to demonstrate how this takes place: GDP=C+I+G+NX.
  2. The sources of aggregate spending or demand are depicted on the right side of the graph: private consumption (C), private investment (I), purchases of goods and services by the government (G), and exports minus imports (exports minus imports) (net exports,NX).
  3. Fiscal policy that directly raises aggregate demand through an increase in government expenditure is referred to as “expansionary” or “loose” fiscal policy.
  4. Fiscal policy objectives differ depending on whether they are to provide commodities and services such as public safety, roadways, or elementary education.
  5. In the long run, the goal may be to promote sustainable growth or poverty reduction by activities on the supply side, such as improving infrastructure or educational opportunities.
  6. In the near term, priorities may change in reaction to the business cycle, a natural disaster, a surge in global food or fuel costs, or any combination of these factors.
  7. In order to eliminate poverty, a low-income nation may shift expenditure toward primary health care, but in a high-income country, pension changes might be implemented in order to address impending long-term expenses associated with a growing elderly population.

By reducing procyclical expenditure—both by restricting bursts of spending when oil prices increase and by abstaining from severe cuts when oil prices fall—policymakers in an oil-producing country may be able to better align fiscal policy with larger macroeconomic changes.

Response to the global crisis

The global financial crisis, which had its origins in the 2007 disaster in the United States housing market, serves as an excellent case study in fiscal policy. The crisis has had a negative impact on economies throughout the world, with banking sector troubles and waning confidence affecting private consumption, investment, and international commerce (all of which affect output, GDP). Attempts were made by governments to stimulate the economy through two channels: automatic stabilizers and fiscal stimulus, which is defined as increased discretionary expenditure or tax reductions.

  • They carry out their operations in reference to the business cycle.
  • This is especially true under progressive tax schemes, where higher-income earners move into higher-tax-rate categories as a result of the loss in output.
  • Consequently, fiscal policy becomes inherently expansionary during downturns and contractionary during upturns as a result of these cyclical fluctuations.
  • There may be less need for stimulus in areas where stabilizers are stronger, because both tax cuts and public works programs can assist to mitigate the consequences of a downturn by reducing demand for goods and services.
  • Furthermore, whereas discretionary actions can be adjusted to meet specific stabilizing requirements, automatic stabilizers do not suffer from the implementation delays that are common with discretionary measures.
  • Stimulus may be difficult to develop and deploy efficiently, and it can be even more difficult to reverse when the economy begins to deteriorate.
  • However, even in nations with greater stabilizers, there may be a pressing need to compensate for the loss of economic activity, and there may be strong reasons for the government to concentrate its crisis response to those who are most acutely in need.

Fiscal ability to respond

The precise answer a government can provide ultimately relies on the amount of fiscal space it has available for new spending programs or tax cuts—that is, whether it has access to extra money at a fair cost or the flexibility to rearrange its present expenditures. Some governments were unable to respond with stimulus because their potential creditors believed that additional spending and borrowing would put too much pressure on inflation, foreign exchange reserves, and the exchange rate—or that it would delay recovery by diverting too many resources away from the local private sector—or that additional spending and borrowing would put too much pressure on the exchange rate (also known as crowding out).

The ability of certain governments to spend wisely, to reverse stimulus measures once they have been implemented, or to address long-standing concerns about underlying structural weaknesses in public finances may also have been questioned by creditor concerns (such as chronically low tax revenues due to a poor tax structure or evasion, weak control over the finances of local governments or state-owned enterprises, or rising health costs and aging populations).

  • Other governments have had more severe financial restrictions, which have prompted spending reductions as revenues have declined (stabilizers functioning).
  • The stimulus’s magnitude, timing, content, and duration are all important considerations.
  • The stimulus’ effectiveness—or, more accurately, how it influences the increase of production (also known as the multiplier)—must be quantified in order to determine whether or not it is successful.
  • If the expansion raises concerns about the sustainability of the economy in the immediate future or the longer term, multipliers may be small or even negative.
  • Additionally, multipliers for expenditure initiatives tend to be greater than for tax cuts or transfers, while multipliers for small, open economies tend to be smaller (in both cases, because of the extent of leakages).
  • With actions in each of these areas, governments have followed a “balanced” approach in practice.
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If, on the other hand, the downturn is expected to last for a long period of time (as was the case during the recent crisis), concerns about lags may become less pressing: some governments have emphasized the implementation of “shovel-ready” projects, which have already been vetted and are ready to go.

Additionally, the responsiveness and breadth of stabilizers can be improved by implementing a more progressive tax system that taxes higher-income families at a greater rate than lower-income households, for instance.

When economies are experiencing growth, fiscal regulations are intended to restrain the expansion of expenditure during boom times, when revenue growth — notably from natural resources — is substantial and limits appear to be less restrictive.

Finally, medium-term frameworks that provide full coverage and assessment of revenues, expenditures, assets and liabilities, and risks aid in the improvement of policymaking across the business cycle, as previously stated.

Big deficits and rising public debt

A number of nations have seen their fiscal deficits and public debt ratios (the ratio of debt to GDP) increase significantly as a result both of the effects of the crisis on GDP and tax collections and the costs of responding to the crisis on their fiscal balances and public debt ratios. Concerns about the financial health of governments have grown as a result of government assistance and assurances to the banking and industrial sectors. Many nations can afford to maintain minor fiscal deficits for longer periods of time, as long as the domestic and international financial markets, as well as international and bilateral partners, are confident in their capacity to satisfy existing and future financial commitments.

Recognizing the dangers of the current crisis, the International Monetary Fund (IMF) in late 2008 and early 2009 called on governments to implement a four-pronged fiscal policy strategy to help ensure solvency: stimulus should not have permanent effects on deficits; medium-term frameworks should include a commitment to fiscal correction once conditions improve; structural reforms should be identified and implemented to enhance growth; and countries facing medium- and long-term demographic pressures should adopt a fiscal policy strategy to help ensure solvency.

Even though the worst impacts of the crisis have subsided, budgetary constraints continue to be severe, particularly in advanced countries in Europe and North America, and this policy is as effective as it has been over the last several years.

Covid-19 Economic Relief

As a result of the consequences of the crisis on GDP and tax revenues, as well as the cost of the fiscal response to the crisis, fiscal deficits and public debt ratios (the ratio of debt to GDP) have increased dramatically in many nations. Concerns regarding the financial health of governments have been heightened as a result of government assistance and assurances to the banking and industrial sector. The domestic and international financial markets, as well as international and bilateral partners, are confident in the ability of many nations to satisfy existing and future commitments while running small budget deficits for lengthy periods of time.

Aware of these risks in the current crisis, the International Monetary Fund (IMF) in late 2008 and early 2009 called on governments to implement a four-pronged fiscal policy strategy to help ensure solvency: stimulus should not have permanent effects on deficits; medium-term frameworks should include a commitment to fiscal correction once conditions improve; structural reforms should be identified and implemented to enhance growth; and countries facing medium- and long-term demographic pressures should implement policies to help reduce poverty and inequality (IMF, 2008).

Even as the worst impacts of the crisis have subsided, budgetary constraints continue to be considerable, particularly in advanced countries in Europe and North America, and this policy is as effective as it has been over the last few decades.

Asmaa El-Ganainy is an Economist in the IMF’s Fiscal Affairs Department, and Mark Horton is a Division Chief in the IMF’s Middle East and Central Asia Department.

Economic Impact Payments

In response to the COVID-19 financial crisis, the Treasury Department, the Office of Fiscal Service, and the Internal Revenue Service (IRS) made three rounds of quick and direct relief payments to affected individuals and businesses. In addition, payments from the third phase are still being sent to Americans all around the country.

Homeowner Assistance Fund

According to the American Rescue Plan, almost $10 billion will be distributed to states, territories, and tribes in order to offer assistance to our country’s most vulnerable homeowners.

Coronavirus State and Local Fiscal Recovery Funds

According to the American Rescue Plan, qualifying state, local, territorial, and tribal governments can receive up to $350 billion in emergency funds to respond to the COVID-19 disaster and bring back employment.

Use of Government Property

Information that is not generally available This includes engaging in any financial transactions utilizing “insider” or non-public knowledge (information that is not available to the general public), as well as enabling the inappropriate use of non-public information to serve your own private interests or the interests of another. Non-public information is information that an employee obtains as a result of his or her Federal employment and is aware (or reasonably should be aware) has not been made available to the general public, such as classified information or other information that is routinely exempt from public disclosure.

  • The employee is prohibited from disclosing this information to the professional association.
  • We all have access to non-public information, and we all have a duty to prevent its unlawful release from the public domain.
  • As an employee, it is your obligation to safeguard and conserve government-owned or leased property and vehicles, and to use them only for approved purposes, according to applicable laws and regulations.
  • Upon terminating your employment with the government, you are not permitted to remove any government property or files, nor are you permitted to use government copiers to make copies of files to take with you.
  • This includes mailing your resumes/applications for opportunities with the federal government or private companies.
  • You must utilize official time in a sincere attempt to carry out your official responsibilities.
  • In accordance with the Department of the Interior’s limited use policy, personal use of Department-owned or leased computers (including internet access), telephones, fax machines, and non-color photocopiers is prohibited.
  • In addition, the use of government-owned or leased motor vehicles, as well as the usage of government charge cards, are exempt from this policy’s restrictions on personal use.

The policy applies to government-owned equipment that is utilized on government-owned property. Employees are not permitted to take government equipment from the office for personal use unless they have obtained prior permission from the property manager.

USE OF THE COMPUTERS AND THE INTERNET

The use of government computers and the internet for personal purposes during employees’ personal time (before and after work; at lunch and other breaks) is permitted as long as the government does not incur any additional costs as a result. Employees are permitted to make personal purchases on the internet, provided that the items are shipped to an address other than the government’s. The following acts are strictly banned on any computer owned or leased by the government:

  • Gambling, visiting and downloading content from pornographic websites are all prohibited. Attempting to influence Congress or any other government entity
  • Campaigning is a form of political activism. Stock trading activity on the internet
  • Real estate activities on the internet The use of the internet in connection with any form of outside labor or commercial activity, including any trade, are prohibited. Product, service, or organization endorsements of any kind are prohibited. Except as needed as part of your official duties under relevant statutory authority and bureau policy, you are not permitted to solicit funds for external groups or objectives. It can be any sort of continuous audio or video streaming from commercial, private, news, or financial institutions.

USE OF DOI E-MAIL

Incoming e-mail is not subject to any limitations at the Department of Interior. Employees are permitted to send personal e-mails under the present policy, provided that they do so in the following ways:

  • Congestion, delay, or disruption of service to any government system or equipment is not caused by personal use of e-mail. Messages are not distributed to more than five recipients at a time (there are no mass mailings)
  • A person employed by a company does not depict himself or herself as operating in an official capacity. Partisan political messages are not conveyed through the communications.

Important to remember is that any e-mail sent or received over any DOI e-mail system may be considered an official record. Employee e-mail communications are not protected by law; the Department of the Interior is frequently obliged to divulge employee e-mails in response to Inspector General, judicial, or Congressional demands.

USE OF DOI TELEPHONES

Employees of the federal government are only permitted to utilize government property when specifically authorized. Employees are permitted to make personal calls on DOI landline telephones when it is required, as long as the calls are beneficial to DOI and do not result in any additional expenses to the government. The government considers such calls to be in its best interests to the degree that they allow personnel to remain at their workstations, therefore boosting the efficiency of the government.

They must be of appropriate duration and frequency, and they may not be used during non-duty hours.

USE OF GOVERNMENT TRANSPORTATION SUBSIDY PROGRAM BENEFITS

Only qualified transportation expenditures, such as mass transit (subway, train, and bus) or other equivalent public transportation modes, are eligible for reimbursement under this program, and benefits are only available for usage on the days that you actually commute to and from work. When you get your next quarterly or monthly distribution, you must subtract any days you are absent from work due to illness or official travel, or any days you do not commute using eligible means of transportation.

Additional information, including answers to commonly asked questions, may be found at the following link.

USE OF GOVERNMENT TRAVEL CARDS DURING OFFICIAL TRAVEL

A government travel card may only be used for official travel and may not be used for any other purposes, such as personal shopping.

You may get an alphabetical list of prospective transactions, which describes which transactions are permissible under the travel charge card program, at the link provided above.

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