What is a fiscal policy?

Fiscal policy is a type of política económica in which the state controls spending and income levels. And all this with a very clear purpose: to maintain the economic stability of the country, fight for full employment and achieve the lowest possible level of inflation. This branch of economic policy tends to occur in nations that have experienced a major economic setback, such as the United States after the great Depression.

Objectives of fiscal policy

When a government decides to implement a fiscal policy in its domains, it does so for the following reasons: to stimulate an economy that is not going through its best moment (that is, to accelerate the economic growth of a nation), to achieve full employment for all and each of the productive resources of a society (whether human or material) and to achieve full price stability (without these experiencing too sharp rises or falls).

Types of fiscal policy

Although all fiscal policies have the same reason for being, the truth is that there are different modalities that we must take into account. Each of them have some peculiarities that differentiate them from each other:

1. Expansive fiscal policy

This policy encourages aggregate demand when the economy presents levels of faiteth or even inflation. The objective? Increase public spending to increase production, reduce unemployment and boost the economy.

2. Contractionary fiscal policy

Contrary to the expansionary fiscal policy, the contractionary policy reduces the aggregate demand to generate an excess of offer added of goods and services.

3. Restrictive fiscal policy

When the economy of a country experiences a stage of excessive expansion, the Government can implement a restrictive fiscal policy that slows aggregate demand and, consequently, excessive inflation that is originating.

Effects of fiscal policy

Any of the three types of fiscal policy that we have just seen affect the aggregate demand for goods and services through economic activity, affect consumer behavior, and displace investment from the private sector.

Leave a Comment