Definition of Fiscal imbalance:
Occurs when all of a governments future debt obligations are different from its future streams of income. These streams of income as well as the obligations are measured at their present values. They will then be discounted at the risk free rate with a certain spread added.
Fiscal imbalance refers to a situation where all of the future debt obligations of a government are different from the future income streams. There are two types of imbalance that can impact a government's expenditures and revenues: vertical fiscal imbalance and horizontal fiscal imbalance. The obligations and the income streams are measured at their respective present values and will be discounted at the risk-free rate plus a certain spread. .
Fiscal imbalances can occur for a government at any given time. If there is a sustained positive fiscal imbalance, then tax revenues will likely increase in the future, causing current and future household consumption to fall.
How to use Fiscal imbalance in a sentence?
- A horizontal fiscal imbalance occurs when revenues do not match expenditures for different regions of the country.
- A vertical fiscal imbalance occurs when revenues do not match expenditures for different government levels.
- Fiscal imbalance occurs when there is a mismatch between a government's future debt obligations and future income streams.
- Vertical and horizontal fiscal imbalance are the two types of imbalance that can impact a government's expenditures and revenues.
Meaning of Fiscal imbalance & Fiscal imbalance Definition