"The use of government revenue expenditures to influence macroeconomic variables developed in reaction to the Great Depression of the 1930s, when the previous laissez-faire approach to economic management became unworkable."
The use of government spending and taxation to influence the economy. Fiscal policy is employed to promote economic growth, stabilize prices, and reduce unemployment.
Government spending: This refers to the various expenditure programs undertaken by the government such as defense, education, infrastructure, and healthcare.
Taxation: Taxation is the primary source of government income for implementing its fiscal policy. Taxes can be direct, such as income tax, or indirect such as sales tax, duties, and tariffs.
Fiscal deficit: A situation where the government’s expenditure exceeds its income. Fiscal deficits have varying impacts on the economy and can lead to inflation or recessions.
Fiscal surplus: When government income exceeds its expenditure, resulting in a surplus. This can be used to pay off debt or fund new spending programs.
Public debt: Refers to the accumulation of a government’s borrowings over time. It can be a tool to finance deficits or to fund particular projects or emergencies.
Crowding out effect: When the government’s borrowing increases, it could lead to a decrease in private sector spending; this is known as the crowding-out impact.
Multiplier effect: A fiscal policy tool used to stimulate economic growth, the multiplier effect quantifies how much impact government spending has on a country’s GDP.
Automatic stabilizers: Elements that automatically adjust revenues and expenditures when the economy goes through periods of growth or contraction.
Tradeoffs between short-term and long-term goals: Fiscal policy can be applied in either the short or long term. Balancing the achievement of short-term goals, with long-term ones, is essential in decision-making.
Political considerations: The politics surrounding fiscal policy are complicated. The complexities inherent in politics necessitate decision making that create constituent resonance while also being practical with economic aspects.
Fiscal Policy Tools: Various fiscal policy tools include discretionary fiscal policy and non-discretionary fiscal policy.
Economic growth: How fiscal policy can impact an economy's growth, and how this can be balanced with other policies such as monetary policy.
Tax incidence: An analysis that helps to determine the burden of taxes and how they are spread throughout the economy.
Estate taxes: A tax levied on the estate of a deceased individual. It is an important aspect of fiscal policy, with various implications for businesses and individuals.
Tax credits: Allowances to lower the amount of tax owed, and usually spurred by government's desire to promote certain behavior or combat certain challenges.
Fiscal policy transmission: The methods through which changes to fiscal policy are transmitted to the economy, and to what effect.
Leading and lagging indicators of fiscal policy: Tracking the impact of fiscal policy is essential to determining its effectiveness, and these indicators can be used to get a better idea of the changing economic landscape.
Expansionary Fiscal Policy: This type of policy is used to stimulate economic growth and increase aggregate demand during periods of recession or economic slowdown. It involves increasing government spending and decreasing taxes to put more money into the hands of consumers and businesses.
Contractionary Fiscal Policy: This policy is used to slow down economic growth and reduce inflationary pressures during periods of high economic output. It involves decreasing government spending and increasing taxes to decrease the amount of money in the economy.
Automatic Stabilizers: These are built-in features of the economy that help stabilize economic fluctuations without requiring explicit policy action. Examples include the progressive tax system, which automatically reduces taxes during periods of lower income and increases them during periods of higher income.
Discretionary Fiscal Policy: This type of policy is implemented through explicit policy decisions by the government. It may be used to address specific economic problems or to achieve long-term economic goals.
Supply-Side Fiscal Policy: This policy seeks to stimulate economic growth by increasing the productive capacity of the economy. It focuses on promoting investment, entrepreneurship, and innovation through tax cuts and other incentives.
Fiscal Austerity: This policy involves reducing government expenditures in order to reduce budget deficits or debt. It is often used as a response to high levels of government borrowing or unsustainable levels of public debt.
Non-Interventionist Fiscal Policy: This policy involves minimal government involvement in the economy. It is based on the belief that the free market will naturally produce the most efficient allocation of resources and achieve long-term economic growth.
"Fiscal policy is based on the theories of the British economist John Maynard Keynes, whose Keynesian economics theorized that government changes in the levels of taxation and government spending influence aggregate demand and the level of economic activity."
"Fiscal and monetary policy are the key strategies used by a country's government and central bank to advance its economic objectives."
"Changes in the level and composition of taxation and government spending can affect macroeconomic variables, including: - Aggregate demand and the level of economic activity - Saving and investment - Income distribution - Allocation of resources."
"Fiscal policy deals with taxation and government spending and is often administered by a government department; while monetary policy deals with the money supply, interest rates and is often administered by a country's central bank."
"It is designed to try to keep GDP growth at 2%–3% and the unemployment rate near the natural unemployment rate of 4%–5%. This implies that fiscal policy is used to stabilize the economy over the course of the business cycle."
"The previous laissez-faire approach to economic management became unworkable during the Great Depression of the 1930s."
"Fiscal policy is used to stabilize the economy over the course of the business cycle."
"Fiscal policy is based on the use of government revenue collection (taxes or tax cuts) and expenditure to influence a country's economy."
"Fiscal policy is based on the theories of the British economist John Maynard Keynes, whose Keynesian economics theorized that government changes in the levels of taxation and government spending influence aggregate demand and the level of economic activity."
"Inflation is considered 'healthy' at the level in the range 2%–3%."
"Fiscal policy is designed to increase employment."
"The unemployment rate near the natural unemployment rate of 4%-5% is targeted by fiscal policy."
"Both fiscal and monetary policies influence a country's economic performance."
"The use of government revenue expenditures to influence macroeconomic variables developed in reaction to the Great Depression of the 1930s."
"The previous laissez-faire approach to economic management became unworkable during the Great Depression of the 1930s."
"Fiscal policy can affect macroeconomic variables, including aggregate demand and the level of economic activity, saving and investment, income distribution, and allocation of resources."
"Government revenue collection (taxes or tax cuts) and expenditure are the primary tools of fiscal policy."
"Fiscal policy is often administered by a government department."
"Fiscal policy deals with taxation and government spending, while monetary policy deals with the money supply and interest rates."