Important Terms

Tax Expenditure

• • Estimated revenue losses due to potential revenue forgone.
  • Special tax rates, tax exemptions, tax rebates to preferred taxpayers.
  • It is an opportunity cost for the government.
  • To promote social goals or attract businesses in the country.

Fiscal Space: The amount of fiscal deficit which can be stretched without pushing it to an unsustainable level. It determines the extent to which government can keep increasing expenditure or increase revenue forgone before the whole measure can have a long-term bearing on the government finances.

Fiscal Stimulus: Attempt by the government to revive the economy with various fiscal policy tools to come out of recession.

Fiscal Drag: When inflation or high-income growth moves taxpayers into higher tax brackets. This increases tax collection without increasing tax rates and in turn it reduces consumption which acts like a drag for the economy.

Fiscal Slippage: If the actual fiscal deficit is more than what was expected it is called a fiscal slippage.

Off-budget Borrowing: A government’s practice of raising funds for various purposes without reflecting these expenditures in the official budget. It is aimed at reducing the fiscal deficit. It can be proceeded through PSUs, or creating Special Purpose Vehicles etc.

Counter-cyclical fiscal policy: It is a policy measures which counteract the effects of the economic cycle. For example, counter-cyclical fiscal policy actions when the economy is slowing would include increasing government spending or cutting taxes to help stimulate economic recovery.