What is Fiscal Policy? Fiscal policy refers to the government's plan for raising revenue through taxation and deciding how that revenue will be spent. It involv...
Fiscal policy refers to the government's plan for raising revenue through taxation and deciding how that revenue will be spent. It involves the use of government spending and taxation to influence the country's overall economic performance.
The main source of government revenue is taxation. Common types of taxes include:
The government spends money on various areas such as:
The government's budget outlines its planned spending and revenue for the upcoming fiscal year. It can either be:
By changing tax rates or government spending, fiscal policy can influence key economic factors such as:
Scenario: The government wants to boost economic growth during a recession.
Fiscal Policy: Increase government spending on infrastructure projects and reduce income tax rates.
Impact: Higher disposable incomes and increased government investment lead to higher aggregate demand, stimulating economic growth and reducing unemployment.
Fiscal policy decisions aim to achieve economic objectives such as stable prices, full employment, and sustainable economic growth. However, the effects of fiscal policy measures are debated among economists and policymakers.
For further reading, refer to the BBC Bitesize guide on fiscal policy and TRH Learning article on fiscal policy impacts.