What is fiscal policy?

 Fiscal policy

Fiscal policy is defined as a policy that links government spending and revenues that have been developed to face economic fluctuations. This is in order to reduce or eliminate unemployment and inflation rates, in addition to achieving controllable sustainable economic growth, as governments stimulate the economy in recessions by increasing the money supply, and in cases of economic expansion, the government limits accelerated economic growth through the imposition of taxes. To achieve a budget surplus, and also so that revenues exceed expenditures, to operate independently of the monetary policy that tries to achieve the same goals by controlling the money supply. [1]

Fiscal policy tools

The fiscal policy in the state affects the economy through spending and taxes, as it works alongside the monetary policy implemented by central banks, as well as affects the economy through the money supply and interest rates, and the fiscal policy aims to create good economic growth, where economic growth should range from what Between 2% to 3% per year, and natural unemployment rates from 4.7% to 5.8%. Inflation must be at its natural level of 2%. Among the tools used in financial policies are the following: [2]

Taxes: Taxes include both income and financial gains obtained from investments, real estate, and sales, as taxes provide income that finances the government, but it is not favored by most people, because many taxable entities have low incomes that they cannot afford to pay. Taxes owed.

Government spending: includes subsidies and transfer payments; Such as social care programs, public works projects, and government salaries, as part of the budget in federal governments goes to social aid programs, as the older the population, the higher the costs of medical care and social security for them.

Effects of fiscal policy

The effects of the fiscal policy differ according to the basic orientations and objectives of its subjects, as its effects differ from one group to another in society, and the most important of these effects are the following: [3]

The effect of tax cuts on the middle class, which is usually the largest economic group in the country, as this group is forced to pay more taxes than the wealthiest upper classes in cases of economic decline and high taxes.

The expansionary fiscal policies caused an increase in the deficit, thus reducing growth, and adopting austerity policies. [4]

High wages caused inflation, thus trying to shrink the economy and harm the country's overall economy. [4]

Investors bid on the local currency, and consequently the cost of exports increased more than imports, which leads to a shift to buying more foreign goods, and a decrease in demand for local goods, and thus an imbalance in trade. [5]


↑ "fiscal policy", www.businessdictionary.com, Retrieved 31-5-2019. Edited.

↑ KIMBERLY AMADEO (30-5-2019), “Fiscal Policy Types, Objectives, and Tools”, www.thebalance.com, Retrieved 31-5-2019. Edited.

↑ Leslie Kramer (8-5-2019), “What Is Fiscal Policy?” Www.investopedia.com, Retrieved 31-5-2019. Edited.

^ Ab Will Kenton (13-5-2019), “Fiscal Policy”, www.investopedia.com, Retrieved 15-6-2019. Edited.

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