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Fiscal policy and the US economy - Essay Example
The U.S. government's fiscal policy is a tool by which the government seeks to manage the general growth and maintenance of the country's economy. The U.S. government's fiscal policy is a mechanism by which the country's taxes and spending is determined. Generally, the government's fiscal policy entails making spending adjustments and directing tax rates…
'Auerbach and Feenberg (2000) have estimated that automatic tax stabilizers offset about 8% of the impact of an economic shock to GDP.'(Economic Research and Data. The Role of Fiscal Policy. 2002)
Mere anticipation of projected fiscal action can have an impact on the U.S. economy. Households and business enterprises will operate their individual spending habits based on both present economics as well as future economics. For instance, a tax cut will leave households will more disposable income, however, if the tax cut is looked upon as a temporary measure it will not contribute to increased consumer expenditure. Similarly, investment tax credits which will only lower the cost of investment ventures on a temporary basis will likely encourage investors to time their spending so as to capitalize on the tax credit initiatives. It is therefore imperative that fiscal policy be considered and conducted in such a manner as to take into consideration the likely impact of both the current and future implications.
'When expectations of future fiscal policy are important, "expansionary" fiscal policy-an increase in government spending, for example-may actually be contractionary'. (Economic Research and Data. The Role of Fiscal Policy. ...