Fishcal Budget Fallacies March 21 2017
Fiscal Policies refer to the use of government expenditures and tax dollars to stimulate the local economy. Although such measures can arguably reduce the risk of an economy running into recession, there are multiple factors that downplay this notion.
Too little too late: Spending decisions are made annually. The inevitable delay from the time such a decision is made by the government (be it to increase or decrease spending), to the time that actual economical impact becomes evident, can be a lengthy situation.
Deficits: Cutting taxes and increasing government spending may be justified on grounds of reaping the rewards of expansionary fiscal policies. However, this inevitably results in a greater budget deficit and higher future taxes. Another highly possible outcome is Crowding Out.
Crowding out: Continuing the train of thought from our previous point, this refers to the private sector shrinking as a result of increased government spending.