Fiscal drag意思
"Fiscal drag" is a term used in economics to describe a situation where an economy's growth is restrained or slowed down due to changes in government fiscal policy, particularly tax policy. It occurs when the growth in tax revenues is faster than the growth in the overall economy, effectively acting as a drag on the economy.
Here's how fiscal drag works:
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Tax Increases: When the government increases taxes, individuals and businesses have less money to spend or invest. This reduction in disposable income can lead to lower consumer spending and investment, which can slow down economic growth.
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Base Broadening: If the government broadens the tax base by closing loopholes or tax exemptions, more people or businesses are subject to taxation, which can also lead to a decrease in disposable income and economic activity.
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Inflation-Indexing: If tax brackets or thresholds are not adjusted for inflation, more taxpayers can be pushed into higher tax brackets over time, even if their real income has not increased. This can lead to a higher tax burden and a drag on the economy.
Fiscal drag can be intentional if the government is trying to reduce inflation or control budget deficits. However, it can also be unintentional if tax policies are not adjusted to keep pace with economic conditions.
It's important to note that fiscal drag is different from "fiscal consolidation," which refers to the deliberate reduction of government deficits and debt through spending cuts and/or tax increases. Fiscal drag is more about the unintended consequences of fiscal policy on economic growth, while fiscal consolidation is a deliberate policy choice.