Samples Finance Fiscal Policy

Fiscal Policy

297 words 1 page(s)

These days, governments tend to lean towards putting in place fiscal policy when it comes to terms of fighting the lack of financial resources in the state budget. The origins for implementing the fiscal policy lie in the Keynesian economic theory according to which a government is to change the level of taxation and which consequently influences an aggregate demand.

While analyzing the fiscal policy from the perspective of its vast influence on the government spending, it shall be noted that an increase in government spending is the more important aspect in case of the decrease of confidence level of a consumer. It to refer to the government spending, one may refer to the expansionary fiscal policy undermining the governmental spending that might exceed tax revenue and commonly takes place in the period of recession. The supportive argument for implementing the above-mentioned dimension of that fiscal policy is the fact that fiscal policy had been implemented in times of the severe crisis (e.g. Great Depression). Therefore, it shall be followed these days, too.

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Even though, the time frame is rather small. Yet, its transit might be more affective on the consumer confidence while analyzing the phenomenon from the perspective of equal decrease of taxes. In terms of long-term effects, the equal decrease of taxes might have painful effects on the state budget in the long run. In other words, it might result in the direct effect of the fiscal policy and significantly have a direct influence on the consumer confidence. Consequently, it will have a direct influence on the change of the demand, too. Therefore, the increase of governmental spending with the effective economic examples of being a viable instrument would have a less painful effect on the negative changes of the confidence of a consumer.

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