Current expenditure: On-going spending on goods and services by government. For e.g. salaries of government personnel, national defense expenditure etc.
Transfer payments: Primarily aimed at redistributing wealth. For e.g. unemployment insurance benefits, social security etc.
Capital expenditure: Government spending on infrastructure projects to boost economic productivity. For e.g. bridges, road networks etc.
Revenue tools:
Direct taxes: Taxes levied on wealth and income. Includes income taxes, corporate taxes, wealth taxes capital gains taxes etc.
Indirect taxes: Taxes levied on goods and services. Includes sales taxes, value-added taxes, excise taxes etc.
Advantages and disadvantages of fiscal policy
Advantages:
Indirect taxes can be implemented swiftly and start generating revenue for the government immediately without incurring additional costs.
Indirect taxes like VAT can influence spending behavior instantly and can be used to discourage consumption of sin products like alcohol and tobacco.
Disadvantages:
Implementation of changes in direct taxes and transfer payments policies is time consuming, thereby delaying the impact of the fiscal policy.
Capital expenditure projects like road construction have long gestation periods; delaying the impact of the fiscal policy.