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Fiscal policy can be distinguished from monetary policy, in that 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. Both fiscal and monetary policies influence a ...
The concept is often encountered in the context of a government's approach to spending and taxation. A 'procyclical fiscal policy' can be summarised simply as governments choosing to increase government spending and reduce taxes during an economic expansion, but reduce spending and increase taxes during a recession.
Government spending can be a useful economic policy tool for governments. Fiscal policy can be defined as the use of government spending and/or taxation as a mechanism to influence an economy. [5] [6] There are two types of fiscal policy: expansionary fiscal policy, and contractionary fiscal policy. Expansionary fiscal policy is an increase in ...
Government deficit spending is a central point of controversy in economics, with prominent economists holding differing views. [3]The mainstream economics position is that deficit spending is desirable and necessary as part of countercyclical fiscal policy, but that there should not be a structural deficit (i.e., permanent deficit): The government should run deficits during recessions to ...
As popularized by supply-side economist Arthur Laffer, the curve is typically represented as a graph that starts at 0% tax with zero revenue, rises to a maximum rate of revenue at an intermediate rate of taxation, and then falls again to zero revenue at a 100% tax rate. However, the shape of the curve is uncertain and disputed among economists.
Despite the straightforward definitions of the states into which the government budget can fall, there are some debates over the issues measurements – such as inflation correction, the inclusion of business cycles, etc. – and how much the public budget, or more specifically debt, should influence public and fiscal policy-making as well as ...
In fiscal year 2005, the deficit began to shrink due to a sharp increase in tax revenue. By 2007, the deficit was reduced to $161 billion; less than half of what it was in 2004 and the budget appeared well on its way to balance once again. Fiscal policy is the application of taxation and government spending to influence economic performance.
This spending is an optional part of fiscal policy, in contrast to social programs for which funding is mandatory and determined by the number of eligible recipients. [2] Some examples of areas funded by discretionary spending are national defense, foreign aid, education and transportation.