Key Concepts

Goods that are collectively consumed and that the market will not adequately provide, because they are non-rivalrous (one person's use does not reduce the amount available to others) and non-excludable (there is no feasible way to keep anyone from enjoying them, so users cannot be charged and 'free-riders' emerge). National defence, roads and clean air are examples; since private enterprise …

A feature of the fiscal system that dampens fluctuations in the economy on its own, without any fresh government decision. A proportional income tax is the leading example: when GDP rises, taxes automatically siphon off part of the extra income and restrain consumption, and when GDP falls the tax take shrinks, cushioning disposable income a …

A deliberate change in government spending or taxes, decided upon to offset an undesirable shift in aggregate demand and stabilise the economy — for example, raising government expenditure from $G_0$ to $G_1$ to counter a fall in investment. It is distinguished from the automatic stabilising properties of th …

The proposition, associated with the economist David Ricardo, that taxation and borrowing are equivalent ways of financing government expenditure. Because forward-looking consumers anticipate that a deficit financed by a tax cut today means higher taxes in the future, they save more now, offsetting the government's dissaving so that national saving — and hence the economy's over …