Fiscal Policy

Discipline: Economics

Fiscal Policy is the governmental policy that involves the proportional use of taxation and government spending as a means to the intended macroeconomic results.

Fiscal Policy can be expansionary, neutral, and contractionary:

An Expansionary Fiscal Policy involves an increase in government spending or a decrease in taxation, or both. Such a policy will cause either a larger budget deficit or a smaller budget surplus than the preceding term.

A Neutral Fiscal Policy occurs when the government spending equals the taxation, meaning that the budget will be balanced, and taxation revenue alone will be sufficient to finance government spending.

A Contractionary Fiscal Policy involves a decrease in government spending or an increase in taxation, or both. Such a polic will cause either a smaller budget deficit or a larger budget surplus than the preceding term.

Also see: budget deficit, budget surplus, government spending, monetary policy, money supply, seignorage, taxation


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