Financial system

and fiscal policy of the

government

Chapter 7.1
1. Government budget and its
structure
 Methods of covering the
budget deficit

1) government bonds;
2) tax rates increasing;
3) sequestration;
4) money emission ("seigniorage“)
Government debt

Internal External
2. Tax system
 The tax system

- is a set of duties, fees, taxes and

other payments, according to the
general principles of taxation and
fees
 PROGRESSIVE
average tax rate increases
if income increases
Types of
taxes
according REGRESSIVE
to average tax rate decreases
if income increases
relationship
between
tax rate
PROPORTIONAL
and income the average tax rate doesn’t
depend on income
 The Laffer curve
Tax revenue,
(R)

L N
R1

Ro
0 50% 100%
Tax rate, %