A transfer payment requires no good or service in return during that time period.

The budget surplus (deficit) is the excess (shortfall) of its spending over its revenue.

The marginal tax rate is the fraction of each extra pound of income paid in tax.

Direct taxes are taxes on income and wealth. Indirect taxes are taxes on spending and output.

A private good, if consumed by one person, cannot be consumed by others. A public good, if consumed by one person, must be consumed by others in exactly the same quantity.

Merit (demerit) goods are goods that society thinks everyone should have (not have) regardless of whether an individual wants them.

Progressive taxes reflect the principle of ability to pay.

The benefits principle is that people getting most benefit from public spending should pay most tax for it.

Tax incidence is the final tax burden once we allow for all induced effects of a tax.

The tax wedge is the gap between the price paid by the buyer and the price received by the seller.

Supply-side economics analyses how taxes and other incentives affect national output when the economy is at full capacity.

The Laffer curve shows how much tax revenue is raised at each possible tax rate.

Economic sovereignty is the power of national governments to make decisions independently of those made by other governments.

Political economy is the study of how governments make decisions.

The median voter on an issue is the person whose preferences are such that half the population’s preferences on the issue lie on one side and half the population’s preferences on the other side.

Logrolling is a vote for another person’s preferred outcome on one issue in order to exchange for their vote for your preferred outcome on another issue.

A credible promise about future action is one that is optimal to carry out when the future arrives. A commitment is a current device to restrict future room for manoeuvre to make promises more credible today.

Policy co-ordination is the decision to set policies jointly when two interdependent areas have big cross-border spillovers.