Policies
Fiscal Policy
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Fiscal policy is a government's deliberate use of taxation and public spending to influence overall economic activity, distinct from monetary policy, which works through interest rates and the money supply. Governments loosen fiscal policy by cutting taxes or increasing spending to stimulate a slowing economy, and tighten it by raising taxes or cutting spending to cool inflation or reduce deficits, working through mandatory spending on established entitlement programs, discretionary annual appropriations and, where needed, supplemental spending. This atlas records fiscal policy as a governing mechanism and arrangement, not as an argument for any particular tax or spending level.
Facts
Founding ContextSourced to the subject's own accountAdvocated by John Maynard Keynes as a tool to stimulate economies during the Great Depression, and used prominently in the 1950s-60s to stabilize economic cycles before falling out of favor in the 1970s-80s. 1 Key ProvisionSourced to the subject's own accountGovernment adjusts levels of taxation and public spending to influence aggregate demand and the level of economic activity. 1 Disputed
Origin YearSourced to the subject's own accountModern fiscal policy as deliberate countercyclical management is often dated to John Maynard Keynes's The General Theory of Employment, Interest and Money (1936), though governments taxed and spent long before this theoretical framework existed. Cross-Tradition Connections
Associated With
Fiscal policy is the taxing-and-spending mechanism through which a welfare state is funded and sustained.
Sources
Dissenting Readings (1 dissenting reading)
Description
Fiscal policy's rise as a deliberate stabilisation tool traces to Keynesian theory during the Great Depression: proponents hold it is especially effective in deep recessions or liquidity traps, when monetary policy loses traction. Free-market critics counter that government spending is inefficient and "crowds out" private-sector activity that would otherwise have occurred. A third, monetarist position, ascendant from the 1970s-80s, holds that monetary policy, not fiscal policy, should be the primary tool of economic stabilisation. All three positions remain live in economic policy debate; no consensus has settled which tool dominates in a given downturn.
A dissenting reading, from Free-market and monetarist critiques of Keynesian fiscal policyEconomics Help: Fiscal Policy, Economics Help
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