{"id":16702,"date":"2023-01-10T04:28:00","date_gmt":"2023-01-10T04:28:00","guid":{"rendered":"https:\/\/businessyield.com\/?p=16702"},"modified":"2023-01-10T15:29:45","modified_gmt":"2023-01-10T15:29:45","slug":"discretionary-fiscal-policy","status":"publish","type":"post","link":"https:\/\/businessyield.com\/bs-business\/discretionary-fiscal-policy\/","title":{"rendered":"Discretionary Fiscal Policy: 2023 Definitive Guide(+Detailed Examples)","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"\n
In this section, we will briefly discuss the roles of discretionary fiscal policy, non-discretionary fiscal policy, examples, countercyclical discretionary fiscal policy, and automatic stabilizers vs discretionary fiscal policy. let’s quickly enlighten you on the word fiscal policy and all related.<\/p>\n\n\n\n
Fiscal Policy is changing the government’s budget to influence aggregate demand. Moreover, it is also when government spending and revenue-raising adjust to affect the macroeconomy, including aggregate demand for goods and services, employment, inflation, and economic growth. Fiscal policy also helps put government and consumer spending under control. The most common kinds are fiscal stimulus, meaning to increase or initiate growth, and countercyclical discretionary fiscal policy. <\/p>\n\n\n\n
Subsequently, a contractionary fiscal policy can be used to rein when an economy is in a state whereby growth is getting out of control and therefore causing inflation and asset price bubbles. It will help bring it to a sustainable level. A contractionary discretionary policy will also lower government spending and increase taxation. This policy will shift aggregate demand to the left which automatically denotes a decrease.<\/p>\n\n\n\n
A fiscal policy is to be tight or contractionary when revenue is higher than spending (e.g when the government budget is in surplus) and loose or expansionary when spending is higher than revenue (i.e. the budget is in deficit). The focus is not on the level of the deficit, but on the change in the deficit. A reduction in the deficit from $200 billion to $100 billion is to be a contractionary fiscal policy, even though the budget is still in a deficit.<\/p>\n\n\n\n
Let’s say the economy has slowed down resulting in lesser spending causing more unemployment. This car needs some fuel to accelerate itself. So the government decides to fuel the economy’s engine by decreasing taxes and increasing government spending.<\/p>\n\n\n\n
Discretionary fiscal policy refers to changes in government spending or tax rates. In other words, it is used to expand or slim the economy. For example, when the UK cut VAT in 2009 to provide a boost to spending. However, the output determines by the level of aggregate demand, so a discretionary fiscal policy can be used to increase aggregate demand and thus also increase the output. This measure would help to close the deflationary gap. So, fiscal policy is a demand-side policy that uses government spending and taxation policy to influence aggregate demand.<\/p>\n\n\n\n
Discretionary fiscal policy differs from automatic fiscal stabilizers. These automatic stabilizers steps in when there is a recession. A government automatically spends more because the economy forces more people to claim unemployment benefits. However, the government may find these automatic stabilizers to be inadequate to deal with major issues and instabilities in the economy. This will make the government increase public works and spending schemes too.<\/p>\n\n\n\n
Discretionary fiscal policy examples use two tools, they are the budget process and the tax code. The first tool is the discretionary portion of the U.S. budget. Congress<\/a> determines this type of spending with appropriations bills each year. The largest is the military budget. All other federal departments are part of discretionary spending too. <\/p>\n\n\n\n The budget process also contains mandatory spending. This includes payments from Social Security, Medicare, Medicaid, and interest payments on the national debt. Congress mandates these programs because they are the law of the land. However, to amend or revoke the relevant law to change these programs Congress must vote. Therefore, making changes in the mandatory budget are very difficult. For this reason, it isn’t a tool of discretionary fiscal policy. <\/p>\n\n\n\n The second tool is the tax code. It includes taxes on workers’ incomes, corporate profits, imports, and other excise fees. Only Congress has the power to change the tax code. Congress changes to the tax code have to be done by approving new laws. The Senate and the house of representatives must pass these laws. But the president has the power to change how tax laws are implemented. He can send directives to the Internal Revenue Service to adjust the enforcement of rules and regulations. <\/p>\n\n\n\nNon Discretionary fiscal policy<\/span><\/h2>\n\n\n\n