Discretionary and Contractionary Fiscal Policy

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Discretionary and Contractionary Fiscal Policy

Discretionary fiscal policy is a tool used by governments to regulate the economy via increasing or lowering the taxes and spending.

Increased government spending and tax cuts are the tools used in expansionary fiscal policy. It is used to ensure faster economic growth, higher demand, and better employment opportunities. Contractionary fiscal policy is defined by lower government spending and increased taxes. It is used to slow down the economy, lower inflation, and prevent a recession.

Both policies have economic and political consequences. In theory, these policies should be used to keep the economy balanced. However, the use of the policies is often defined by the political agenda, rather than the economic needs. Contractionary fiscal policy is essential to keep the growing economy healthy. However, it is an unpopular measure with the voters and can harm the political career of legislators. As a result, expansionary fiscal policy is often overused to gain political influence. Excessive use of this policy can lead to a major economic crisis.

Politicians are usually reluctant to implement contractionary fiscal policy, as it can cost them their career. Most voters do not understand the economic processes well and make their decisions based on policies that impact their opportunities in the short term.

I agree with the fact that the positive effects of contractionary fiscal policy are often underestimated. Clintons use of the policy in the 1990s was largely beneficial for the state and helped reduce the budget deficit. However, it might prove difficult to explain the dangers of excessive economic growth to the voters with no background in economics. Therefore, politicians avoid implementing unpopular policies that can harm their careers.

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