In the United States, the president influences the process, but Congress must author and pass the bills. Congress has two types of spending. The first is through the annual discretionary spending bill process. It can also increase benefits payments in mandatory programs, which is more difficult because it requires a vote majority in the Senate to pass. The largest mandatory programs are Social Security, Medicare, and welfare programs. Sometimes these payments are called transfer payments because they reallocate funds from taxpayers to targeted demographic groups.
Congress must also pass legislation when it wants to cut taxes. There are many types of tax cuts, including taxes on income, capital gains, dividends, small businesses, payroll, and corporate taxes.
The purpose of expansionary fiscal policy is to boost growth to a healthy economic level, which is needed during the contractionary phase of the business cycle. The government wants to reduce unemployment, increase consumer demand, and avoid a recession. By using subsidies, transfer payments including welfare programs , and income tax cuts, expansionary fiscal policy puts more money into consumers' hands to give them more purchasing power.
Corporate tax cuts put more money into businesses' hands, which the government hopes will be put toward new investments and increasing employment. In that way, tax cuts create jobs, but if the company already has enough cash, it may use the cut to buy back stocks or purchase new companies.
The theory of supply-side economics recommends lowering corporate taxes instead of income taxes, and advocates for lower capital gains taxes to increase business investment. The Trump administration used expansionary policy with the Tax Cuts and Jobs Act and also increased discretionary spending—especially for defense.
The Obama administration used expansionary policy with the Economic Stimulus Act. The Bush administration used an expansive fiscal policy to end the recession and cut income taxes with the Economic Growth and Tax Relief Reconciliation Act, which mailed out tax rebates. President John F. Kennedy used expansionary policy to stimulate the economy out of the recession. President Franklin D. Roosevelt used expansionary policy to end the Great Depression. It worked at first, but then FDR reduced New Deal spending to keep the budget balanced, which allowed the Depression to reappear in Roosevelt returned to expansionary fiscal policy to gear up for World War II.
Expansionary fiscal policy works fast if done correctly. For example, government spending should be directed toward hiring workers, which immediately creates jobs and lowers unemployment. Tax cuts can put money into the hands of consumers if the government can send out rebate checks right away. The fastest method is to expand unemployment compensation. The unemployed are most likely to spend every dollar they get, while those in higher income brackets are more likely to use tax cuts to save or invest—which doesn't boost the economy.
Most important, expansionary fiscal policy restores consumer and business confidence. They believe the government will take the necessary steps to end the recession, which is critical for them to start spending again.
Without confidence in that leadership, everyone would stuff their money under a mattress. The main drawback is that tax cuts decrease government revenue, which can create a budget deficit that's added to the debt. Otherwise, it grows to unsustainable levels. The Treasury Department prints paper currency and mints coins.
Politicians often use expansionary fiscal policy for reasons other than its real purpose. For example, they might cut taxes to become more popular with voters before an election. That's dangerous because it creates asset bubbles, and when the bubble bursts, you get a downturn. It's called the boom and bust cycle. Expansionary policy is used more often than its opposite, contractionary fiscal policy. Voters like both tax cuts and more benefits, and as a result, politicians that use expansionary policy tend to be more likable.
State and local governments in the United States have balanced budget laws; they cannot spend more than they receive in taxes. If they don't have a surplus on hand, they have to cut spending when tax revenues are lower. In this scenario, cutting spending worsens the recession. Expansionary monetary policy is when a nation's central bank increases the money supply, and this method works faster than fiscal policy. The Federal Reserve can quickly vote to raise or lower the fed funds rates at its regular Federal Open Market Committee meetings, but it may take about six months for the effect to percolate throughout the economy.
Congressional Research Service. Economy: Fiscal Policy. Joe Manchin. These measures result in more efficient labour markets and boost the supply side. Most users should sign in with their email address. If you originally registered with a username please use that to sign in.
To purchase short term access, please sign in to your Oxford Academic account above. Don't already have an Oxford Academic account? Oxford University Press is a department of the University of Oxford. It furthers the University's objective of excellence in research, scholarship, and education by publishing worldwide. Sign In or Create an Account.
Sign In. Advanced Search. Search Menu. Article Navigation. Close mobile search navigation Article Navigation. Volume Tales of fiscal adjustment. Alberto Alesina , Alberto Alesina. Oxford Academic. Google Scholar. Silvia Ardagna. Select Format Select format. Permissions Icon Permissions.
Issue Section:. You do not currently have access to this article. Download all slides. Sign in Don't already have an Oxford Academic account?
0コメント