Fiscal Policy, Taxation, and Labor Market Dynamics

Fiscal Policy and Taxation

In performing functions that require goods and services, there is a cost to be funded through the nation's budget, and this is managed by the Executive.

Financing of the Budget

Ability to Pay

If the taxpayer has no income, taxes must not be charged. The tax rests on the amount of your income.

Benefit Principle

There is a relationship between taxes and benefits of the State (E°).

Classifications of Taxes

1. Direct Taxes

Direct tax revenues or profits from a natural or legal person.

2. Indirect Taxes

Taxes levied on facts such as ringers, stamps, customs duties, and VAT.

Tax Progressivity

• Progressive Tax: As the amount of income rises, the tax rises.
• Proportional Tax: The tax is proportional depending on the tax base.
• Regressive Tax: In practice, there are regressive taxes.

Other Sources of State Revenue

1. Assets of its Own: The State (E°) has assets and businesses that generate money, and the E° also leases some property and receives income.
2. Concessions: Public goods like roads and shipping are developed privately.
3. Indebtedness: When revenues do not cover expenses, there is a budget deficit that must be funded. This can be:

• Internal: The E° turns to national capital markets (effect expulsion: to absorb savings from the domestic market and interest rates rise, private schools do not invest).
• External: The E° has recourse to external capital markets. This provides resources depending on the country's risk classification, which sets an interest rate.

Laffer Curve

The Laffer Curve shows the relationship between tax revenues and the amount collected. If the rate is 0, there will be no tax collection, and if the rate is 100, there will be no collection either because no one works.

Budget Expenditure

All government spending is done through the budget. Tax revenue and treasury income are distributed, in general lines, to the three branches of the State, separately for the Comptroller and Public Ministry.

Labor Market

The labor market is a productive factor where workers offer jobs, and firms demand labor. The balance is where supply and demand are equal. If supply exceeds demand, two problems arise:

1. Salaries are so high that they cannot be financed.
2. High pay is sacrificed for more free time.

Q is the workforce of the community. The active population consists of all those who desire and can work.

Grounds for Unemployment

1. Structural Unemployment: Caused by a weakness in the economy's ability to generate jobs.
2. Frictional Unemployment: Occurs when people decide to change homes or take a voluntary break.

Unions

1. Federation of Trade Unions: Controlled by the Communist Party.
2. Another Federation: Controlled by the Social Democratic Party.
3. Christian Democratic Party: Close ties with Chile through the ASICH.
4. AFL: Born to neutralize the influence of the first federation in America, it operates through ORIT, and in Chile, it had contact with the maritime sector.

Types of Unions

1. Industrial Union: Those of the company, where collective bargaining occurs among its members and the company.
2. Professional Union: Represents workers in the same specialty in different companies within an economic activity. Negotiation is between the unions and representatives of each company.

Philips Curve

There is a relationship between inflation and unemployment. Higher inflation cannot reduce unemployment because, in the medium and long term, there will be hyperinflation.