Grasping the Concept of Fiscal Policy

Economic news usually bear the term fiscal policy. We also hear it in TV reports, as well as from peers working in the field. But what really does this really mean and how does it impact the public?


It is measure by which the government adjusts tax rates and spending to counter inflation and control the movement of the economy. This regulation was initiated to ramp up the administration’s role in managing factors including unemployment, businesses and cash value. This concept basically indicates that the government can affect macroeconomic output level by hiking or slashing taxes and expenditures to rein inflation and keep it in a range considered as healthy enough.


The main challenge here is centered on the capacity to find a balance between rates and expenses by knowing when to increase or lower each of them. For example, in order to prompt a stagnant economy, officials may resort to a boost and spending and cut down of taxes, as this would result to a flow of money into the system. Despite this, the cash may have a decreased value because it would now take huge sum of funds to purchase something of the same financial worth.

Meanwhile, if the economy slows down, the rise of unemployment is likely, plus a drop in consumer spending. This may result to a downturn for many businesses, which may urge the government to escalate fund allocation for infrastructures so the prevailing loss of jobs can be resolved. This will also result to more cash being pumped into an economic system which is known as pump priming. While this is positive since results to lesser taxes, stimulated businesses and bolstered demand, it can be risky as well, especially if it lacks proper control. There is a thin line between a healthy economy and excess money in the market, which raises inflation beyond reasonable range. When inflation becomes too strong, the government may need to trim down money in the circulation.

Who is affected?

The impact of this policy is not the same for everyone. It can affect only the middle class, which comprises majority of several populations. In cases of decline, it is possible that they are still the ones to suffer additional taxes compared to wealthier groups. Similarly, when public expenses are hiked for establishment building, not everyone is covered. It may only be applicable for those whose expertise fit the structure to be established.

Overall, although this regulation can be a bit of a task, it all depends on how the administration fine tunes their policies according to the present needs of their economy. The main query here will always be focused on how much involvement must a regime have in terms of economic activities. Nevertheless, there is no question that their presence is needed to attend to the well being of a population.