Fiscal Policy

economic program which operates according to changes in a country's budget or taxes, governmental policy regarding budgetary regulation

Fiscal policy refers to the federal government's use of its annual budget (usually 'handed down' in May each year) to affect the level of economic activity, resource allocation and income distribution. The budget strategy can also influence the achievement of the government's objectives of internal and external balance and economic growth. The two main instruments of fiscal policy are government spending and taxation. Changes in the level and composition of taxation and government spending can impact on the following variables in the economy: - Aggregate demand and the level of economic activity;
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Noun
1. a government policy for dealing with the budget (especially with taxation and borrowing)
(hypernym) economic policy

The use of government spending and taxing for the specific purpose of stabilizing the economy.

That part of government policy which is concerned with raising revenue through taxation and with deciding on the amounts and purposes of government spending. Keynesian economic theorists believe that government can, and should, regulate the overall pace of activity in the national economy through fiscal policy, principally by deliberately having government borrow to spend more than it takes in (running a budget deficit ) to increase total demand for goods and services in times of high unemployment and economic slowdown (the deficit being created either by cutting taxes or by increasing spending or both). Similarly, Keynesian theorists would advocate having government spend less than it takes in (running a budget surplus ) to cool down the national economy when too great an expansion of total demand has pushed production to its physical limits and threatens to bring on excessive inflation .
[See also: budget , budget deficit , budget surplus , business cycle , unemployment , investment , recession , tax, taxation ]