Fiscal Policy is the concept used to explain how and in what manner countries regulate tax rates and expenditure levels.
Fiscal policy aims to influence economic conditions. Fiscal policy achieves its objective by using government expenditure and tax policies. In other words, fiscal policy is used by governments to change the direction of the economy and to ensure that the stability of the economy is maintained.
Fiscal policy stabilizes the country's growth rate and positively affects the socioeconomic level of a country. Fiscal policy works with monetary policies. Fiscal and monetary policies aim to raise economic indices, such as positively affecting the welfare of countries.
The aggregate level of inflation, consumption, demand and welfare in a country's tax system and economy is determined by the state. States have a great deal of power and advantages, such as being able to manage inflation and protect the value of money. Fiscal policies affect the money over which governments have influence. At the center of fiscal policy are taxes.
What Are the Types of Fiscal Policy?
There are two types of fiscal policy:
- Expansionary policy and instruments
- Contract policy and instruments
Expansionary Policy and Instruments
Governments that want to have a positive impact on the economy prefer to reduce tax incentives in the implementation of fiscal policy. Instead of cutting taxes, governments may increase expenditures and try to provide expansion in the economy.
Expansionary policy and deficit spending are used interchangeably. Deficit spending is spending in excess of revenues raised from taxes and other sources.
Contract Policy and Instruments
Governments resort to contractionary fiscal policy to address inflation and other expansionary factors. At the same time, governments may resort to recession to restore economic equilibrium. Governments achieve recession by raising taxes, reducing expenditures and reducing prices on sectors.
If the content of fiscal policy is expenditure deficits, contractionary fiscal policy is applied. Fiscal policy determines budget surpluses. However, contractionary fiscal policy is not often preferred by governments. Instead of fiscal policy, governments prefer monetary policy more often. Monetary policy refers to raising interest rates and restricting credit supply in order to prevent inflation.
Fiscal Policy and Monetary Policy
Fiscal policy is the responsibility of governments. It involves boosting or slowing down economic activity through taxes and government spending. Monetary policy refers to measures taken to increase or decrease liquidity through a country's money supply.
Fiscal Policy and Cryptocurrencies
Due to the decentralized nature of cryptocurrencies, their inability to be audited and controlled, and the inability to prevent their use despite these features, states have brought the issue of issuing their own cryptocurrencies to the agenda. Since the economic policies of countries consist of the combination of monetary and fiscal policies, the decentralized nature of cryptocurrencies has been reacted against by many countries.
What Are the Main Insturments of Fiscal Policy?
The intruments used by governments to influence the economy are fiscal policy instruments. Fiscal policy instruments include changes in taxation levels and government spending. Taxes are lowered and expenditures are increased to ensure growth in the economy. To cool an overheating economy, taxes are increased and spending is reduced.
How Does Fiscal Policy Affect People?
Fiscal policy has different effects on people. Tax cuts have a greater impact on middle class people. As a result of the economic downturn and increased taxation, middle class people may have to pay more taxes.
