Fiscal policy

Fiscal policy is a policy instrument of the state, which attempts to compensate for the economic fluctuations by means of the influence of taxes and government spending and thus to obtain a stable economic growth. Other goals of fiscal policy are a high level of employment and a uniformly low inflation.

Fiscal policy is a part of financial policy and is often mistakenly equated with this. Fiscal policy is furthermore an important element of economic policy.

• 3.1 multiplier effect
• 3.2 Akzeleratoreffekt

Elements of fiscal policy

Expansive ( demand- enhancing) fiscal policy instruments are, for example,

• Reduction of income tax and excise duties
• Award of public contracts
• Expansion of social
• Promotion of employment programs

Restrictive ( lowering demand ) fiscal policy instruments are, for example,

• Increase of income and consumption taxes
• Reduction of public contracts
• Dismantling of social

Indifferent fiscal policy instrument, for example,

• Reduction in unit labor costs ( possibly increased foreign demand towards simultaneous decline in the macroeconomic wage levels, ie declining purchasing power and declining domestic demand )

Countercyclical fiscal policy

Fiscal policy as an economic policy

The basic idea

In order to achieve the objectives set for example in the German Stability Act objectives, the state must counteract the economic fluctuations. In periods of recession and depression, the state is trying to revive the economy. In periods of economic boom, however, he will try to slow down the economy. This is not about, to prevent inflation, the only one inelastic supply would come materialize as demand increases, but to form financial reserves for subsequent prosperity to the recession ( economic equalization reserve). This can happen, for example about rising taxes and social security contributions. Since the business cycle is countered this way, it is called an anti-cyclical fiscal policy.

In times of downturn decrease government revenues. Nevertheless, the state must increase spending to increase aggregate demand. The government shall be financed either from the economic compensation reserve or public debt ( deficit spending ). In boom times the state revenues rise again and the state restricts its government measures.

Limits of counter-cyclical fiscal policy

The counter-cyclical fiscal policy tries to influence the economy and thus compensate for the economic fluctuations by controlling aggregate demand. In addition, the state is trying to create in the recovery phase by austerity buffer for later expected recession in order to survive bottlenecks unproblematic can. Economic fluctuations arise mainly from the mismatch of supply and demand. For this reason it is also called demand-oriented economic policy. It has long been assumed to be largely avoided political economic fluctuations with these agents. Economic crisis of the mid 70s and early 80s, however, have questioned the effectiveness of the policy in question.

Effects of fiscal policy

The measures will mean that small changes in government spending lead to major changes in the economy. A distinction is made between the multiplier effect and the Akzeleratoreffekt:

Multiplier effect

By government expenditure, national income increases. Government payments go directly to households (eg child benefits, employee savings allowance ) or indirectly through the company. This may be an additional demand is initiated, which is higher than the actual additional government spending (see also debt paradox). Whether increased investment increase aggregate demand depends, according to Keynes, in effect on the extent of employment and consumer spending rising.

Akzeleratoreffekt

The resulting from the multiplier effect of increased demand leads to capacity utilization in the company. In order to eliminate bottlenecks, companies are "forced" to invest. This effect of increased national income to the increased investment is referred to as Akzeleratoreffekt. According to the accelerator effect in the downturn.

Criticism

Monetarism rejects fiscal policy to economic management and calls for monetary stability as the primary objective.

The criticism of the anti -cyclical fiscal policy is on the following points:

• The foreign demand is nearly not influenced. International constraints also allow not too overpowering countermeasures.
• For all economic instruments appear delayed effects (so-called time lag ) on. This can lead to the measures only apply if a different economic cycle has already occurred, so that they be affecting counterproductive.
• The reactions of economic agents are not predictable. A tax cut does not necessarily cause higher spending, for example, but they can also lead to a higher savings rate.
• A proportion of economic theorists doubted in principle the effectiveness of fiscal measures. They argue that higher government spending led to a rise in the general level of interest rates, whereby private investment would be pushed back ( crowding out effect ) and production and employment remained unchanged (although interest rates will actually be fixed by "independent" central banks).
• Expansive measures are possible only at the expense of the national debt. A high public debt during an economic upswing trigger inflationary trends and limits the future potential of the state. During an economic downturn and credit crunch or just in general, private consumption as debt waiver according to experience (Japan crisis ) affects state credit creation hardly inflationary.

In the past, fiscal policy tools were often handled unfortunate because structural problems with economic policy instruments have been fought. This had arisen structural budget deficits. In addition, no surpluses were postponed for a later economic downturn.