What is the relationship between fiscal policy and government expenditures?

Fiscal policy and government expenditure are closely related concepts: the latter is a key part of the former. Fiscal policy covers steps taken by a government involving expenses and taxation. This is contrary to the other main type of central economic control, a monetary policy that includes the availability and cost of money and loan. Fiscal policy and government expenditure can be used for both economic and political means. It includes decisions on how much to spend on public services such as infrastructure, military or social payments. It also includes decisions on how much to raise taxes. In both cases, fiscal policy includes total amounts spent or increased amounts and specific amounts spent or increased from individual programs. Some policies may have specific measures, for example using a tax to influence behavior, such as a high tax on tobacco.

It is important to distinguish between the total amouns spent and raised and the balance between them. Both have an economistical and political components. For example, the government may decide to support high public expenses and increase sufficiently high tax revenues to pay for them. Alternatively, the government may decide that taxes should be low and thus reduce public expenses accordingly.

Balance between expenses and income is also an important political decision. Some governments aim that the two are as close as possible to the closest. Other governments are engaged in expansion policy, which means that only temporarily spends more than it receives. The argument is usually that it will benefit the country in the long run and help increase future tax revenues. Some governments argue about contraction policy, which means that expenses are deliberately lower than tax revenues; The argument is usually that it pays around Debts or create a reserve.

debates on fiscal policy and government expenditure are sometimes confused by economistsClear cycles. This is because year -on -year data can be influenced by economic events. The government, which does not change its overall policy, may find that social security payments increase and tax revenues are declining unemployment and vice versa.

technically there is a third source for fiscal policy, namely loans. In one sense, this is simply a logical conclusion of the other two: if expenditure exceeds taxation, loans are seemingly inevitable. In practice, the government can decide how to finance these shortcomings. In addition to loans, for example by issuing bonds, it can use existing reserves created when taxation has exceeded expenses or can sell government assets. The prospect of adopting these measures may affect a decision made in a wider fiscal policy and government expenditure.