The fiscal policy is an economic policy instrument of the state , which means the influence of control and government spending attempts to compensate for the cyclical fluctuations. Thus, stable economic growth should be maintained. Further goals of fiscal policy are high employment levels and consistently low inflation.
Fiscal Policy Instruments
- Reduction in income taxes and consumption taxes
- Public procurement
- Expansion of social benefits
- Promotion of employment programs
- Increase in income and consumption taxes
- Reduction in public procurement
- Reduction of social benefits
- Dismantling of employment programs
Effects of fiscal policy
National income increases through government spending. State payments go either directly to private households (e.g. child benefit , employee savings allowance ) or indirectly through companies. This can trigger additional demand that is higher than the actual additional government spending (see also debt paradox ). According to Keynes, whether increased investment increases overall economic demand ultimately depends on the extent to which the level of employment and propensity to consume increase.
The increased demand resulting from the multiplier effect leads to capacity utilization in companies. In order to remove bottlenecks, companies are “forced” to make investments. This effect from increased national income to increased investment is known as the accelerator effect. The accelerator acts accordingly in the downturn.
Countercyclical fiscal policy
In order to achieve the goals set, for example, in the German Stability Act, the state must counteract economic fluctuations. In phases of recession and depression, the state will try to stimulate the economy . In phases of the boom, however, he will try to slow the economy down. This is not done to prevent inflation, which would only come about with increasing demand if the supply was inelastic, but to build up financial reserves for a recession that followed prosperity (economic adjustment reserve). This can happen, for example, through increasing taxes and social security contributions. Since this counteracts the business cycle, one speaks of an anti-cyclical fiscal policy.
In times of downturn, government revenues fall. Even so, the state has to increase spending in order to increase aggregate demand . The state measures are financed either from the cyclical adjustment reserve or through state debt ( deficit spending ). In times of economic boom, state revenues rise again and the state throttles its state measures.
Limits of countercyclical fiscal policy
The countercyclical fiscal policy tries to influence the economy by controlling the overall economic demand and thus compensate for the economic fluctuations. In addition, during the upswing phase, the state tries to create buffers for the later expected recession through austerity measures so that bottlenecks can be overcome without problems. Economic fluctuations arise primarily from the imbalance between supply and demand. For this reason it is also known as demand-oriented economic policy. For a long time it was assumed that these means could largely avoid fluctuations in economic policy. However, economic crises in the mid-1970s and early 1980s called the effectiveness of global control into question.
Discretionary fiscal policy
With discretionary fiscal policy, a decision is made on a case-by-case basis as to whether and how to react to a specific economic situation. So z. B. in a recession economic stimulus programs are decided.
The global control has been successfully operated in the 1960s until the mid-1970s. With the emergence of stagflation , the recipes for global control had been recognized as ineffective - global control had less and less influenced the economy and led to increasingly higher levels of new debt.
The discretionary fiscal policy is also subject to criticism. In particular representatives of neoclassical schools of thought ( monetarism , supply policy ) doubt the validity of the Keynesian transmission mechanism and the assumptions on which it is based. Different levels of criticism must be distinguished:
- The necessity of economic policy is sometimes doubted, since the market economy is inherently stable as long as it is not disturbed by state intervention.
- Other authors argue that government spending is crowding out private demand because it is financed either through taxes or through higher indebtedness ( crowding-out ).
- Assuming Ricardian equivalence , the private sector reacts to attempts by the state to regulate the economy by changing their spending in the opposite direction.
The number of advocates of discretionary fiscal policy has increased due to the financial crisis from 2007 and the global economic crisis from 2007 . The criticism of fiscal policy led to further developments. So the delay effect z. B. be restricted by automatic stabilizers and formula flexibility or a rule-based fiscal policy. The latter refers to rules agreed in advance for the use of fiscal policy instruments for a specific economic situation.
- Fiscal union
- Debt brake
- Economic cycle
- European Fiscal Compact
- Independent body to monitor compliance with budget rules
- Paul A. Samuelson, William D. Nordhaus: Economics . Translation of the 15th edition. Ueberreuter, Frankfurt / Vienna 1998, ISBN 3-8323-0414-2 , p. 857.
- John Maynard Keynes: General Theory of Employment, Interest and Money, 1936: p. 146: "... to assert that money is the potion which stimulates economic life, we must remember, that much can still happen between the cup and the lips ... if the liquidity preference in the public increases more than the amount of money ... and while one can expect an increase in the amount of investment, all other things being equal, an increase in employment this will not happen if the propensity to consume decreases. "
- IMF, Olivier Blanchard , January 1, 2013: WP / 13/1: Growth Forecast Errors and Fiscal Multipliers (PDF, 43 pages; 1.09 MB) Retrieved February 8, 2013.
- Springer Gabler Verlag, Gabler Wirtschaftslexikon, keyword: discretionary financial policy .
- Duden Wirtschaft from A to Z: Basic knowledge for school and study, work and everyday life, 5th edition, Mannheim, 2013, retrieved from the Federal Agency for Civic Education Fiscal Policy .
- Springer Gabler Verlag, Gabler Wirtschaftslexikon, keyword: fiscal policy .
- Reiner Clement, Wiltrud Terlau, Manfred Kiy, Applied Macroeconomics: Macroeconomics, Economic Policy and Sustainable Development with Case Studies , Vahlen, 2013, ISBN 978-3-8006-4389-9 , p. 223.