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Unit 38 M2 and D2

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Fiscal Policy: Fact sheet
The Fiscal policy report to David Lewis, Tesco’s CEO.
Definition
The fiscal policy is when the government changes its spending level and tax rates to monitor and influence their economy. The government will need to increase tax revenues to fund expenditure by increasing taxation by adjusting the income tax level.
Role of Fiscal policy
The role of the fiscal policy is to monitor the economy and shows the effects of adjusting income tax. The fiscal policy also can redistribute income by progressive tax which is the percentage of tax which is charged due to a person income. This allows mare tax on people with higher incomes to increase tax revenues. The fiscal policy shows that a rise in income tax would lower personal disposal income and profits for sole traders and partnerships, which will cause less spending, less profits for businesses, less investment, fall in aggregate demand and a shrink in the economy. Therefore to get economic growth, the government should decrease income tax which would have a positive effect on personal disposal income, businesses profits, investment and the economy.
In addition, taxes affect the distribution of income. Progressive taxes take a higher percentage of a person’s income as their income raises. This makes the distribution of income after tax more equal than the distribution before tax.
Taxes
There are different types of taxes such as income tax, VAT, council tax, Vehicle Excise Duty, Air Passenger Duty, Excise Duty and Corporation Tax. Income tax is a direct tax on the income someone has. VAT is an indirect tax, which is on all goods bought in the UK. Vehicle Excise Duty is tax on vehicle owners for spending on road maintenance and new roads. Air Passenger Duty is tax on carriage of passengers leaving the UK. Excise Duty is tax on goods classed as ‘sin taxes’ such as tobacco, alcohol and

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