Table of contents
Definition of Fiscal Policy.
2. Ways the government uses the Fiscal Policy.
-Types of Fiscal policy and their uses
-Effects of Fiscal policy changes
-Other methods of controlling the economy
Definition of fiscal policies.
"Fiscal policy is the use of the budget to achieve macroeconomic objectives such as full employment, sustained long-term growth and price stability".
Fiscal policies can basically be described as a tool used by the government to control the economy. This can mean increasing the rate of economic activities with a view to expanding the economy, or decreasing the activities with a view to contracting the economy.
The fiscal policies are used when the Government Budget has been determined. The government budget is a totality of the expected revenue and expenditure by the government for a given fiscal year
As seen by many economists, fiscal policy has two roles.
The first role of fiscal policy is to eliminate any severe deflationary or inflationary gaps. Simply put, fiscal policy could be used to prevent an economy suffering a prolonged recession, such as that experienced in the 1930s and it can also be used to prevent rampant inflation in the economy .
The government uses fiscal polices in two main ways:
The revenue from taxes includes those levied on personal income and those levied on corporations. It is a means of transferring wealth form the hands of individuals and corporations into the hands of the government. It also includes other forms on taxes which social security, health and insurance, council taxes and indirect taxes such as the Value Added tax on goods (VAT).
The government spends money on various activities such as transfer of payments, purchases of goods and services and building of infrastructures.