Fiscal Policy
Tools of Fiscal
Government Spending
Taxes
Current Government Expenditure
Transfer Payments (welfare, CDC)
Capital Expenditure (Infrastructure)
Direct Taxes (Income, Corporations, Wealth Taxes)
Indirect Taxes (Custom, Excise, Govt Expenditure Taxes)
Benefits
Positive secondary benefits on supply side (Increase in LRAS)
Limitations
Crowding-out effect
Monetary COE, Govt borrow frm banks, high interest rates, higher COB, lose I (counter effect)
Physical COE, Land and Labour shortages, increase COP
Fiscal Sustainability
Requires some sort of sustainability in terms of money, have to take from reserves
Time Lags
Recognition Lag (Time to realise recession)
Implementation Lag (Time to discuss)
Response Lag (Time for policies to roll out)
Accuracy of Forecasts
Small Multiplier Size (Multiplier effect ineffective)
Govt Spending or Taxes? (Which is btr)
Inflexibility (Cannot roll back)
Method of financing (tradeoffs)
High tax now or later?
Internal or external debt?