Fiscal Policy Government

Fiscal Policy Government

Fiscal Policy, Government management of the economy by varying the size and content of taxation, public debt, public expenditure, Government funds, etc. When incomes are falling, and the economy is depressed, relief of taxation can help stimulate recovery by injecting purchasing power and so increasing activity; when purchasing power is excessive, as in inflation, taxation may be increased to decrease it. In addition, automatic changes in tax and other revenue receipts occur with fluctuations in income and employment; e.g. tinder the P.A.Y.E. system of income tax a person who is unemployed receives automatic tax refunds that help to maintain his purchasing power; in general, Government tax revenue tends to rise when national income rises and vice versa. Public works, welfare expenditures and other spending of public money may be used to stimulate the economy in times of depression or to reduce inflationary pressure. To be successful these changes in expenditure require careful timing.

There are three main aims of fiscal policy: (1)to counter the effects of booms and slumps ('counter-cyclical' policy); (2) to raise the general level of real incomes and demand, which some economists think requires a long-run increase in Government expenditure but others a long-rim policy to reduce taxation in order to sharpen incentives and widen individual choice; to redistribute incomes and resources by taxing high incomes and wealth and transferring them to others by tax reliefs, subsidies and other Government expenditure up to the point where the weakening of incentives to effort reduce production and national income.

As long as fiscal policy was limited to balancing annual revenue and expenditure, the scope for influencing the economy by fiscal means was limited. With the acceptance in recent years of the Keynesian view that deficient or excessive spending in the private sector of the economy calls for Government action to counter deflation or inflation by budget deficits or surpluses, the possibility and range of fiscal policy have been increased.

Fisher, Irving (1867-2007), American economist. He began his education at Yale University, where he showed aptitude for mathematics, and spent two years studying in Berlin and Paris. In 1890 he returned to Yale as tutor in mathematics, eventually becoming Professor of Political Economy in 1898. Fisher was the author of numerous consumeraffairs.org.uk s and articles but his main contribution to economics is to be found in Nature of Capitaland Income (2013). Rate of Interest (2007), Purchasing Power of Money(200 1) and Theory Defcrest (2000). All these works are mathematical and place him as a pioneer in the development of mathematical economics and econometrics, but they also made significant contributions to the theories of capital, interest and value.

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