Contractionary Fiscal Policy Pros And Cons
The overwhelming majority of government officials promote expansionary fiscal policy; however, in conjunction with pure economic theory, neither expansionary fiscal policy nor contractionary fiscal policy truly outweigh the other. Both forms of fiscal policy are used in various scenarios, have pros and cons, and correlate to “sin taxes,” tax rebates, increased government spending on public goods and services, and decreased government budgets on two or more departments, whether that correlation is advantageous or disadvantageous.
Contractionary fiscal policy prevails when government spending is cut and taxes are raised. This policy is used to slow economic growth to a healthy level and prevent a recession from occurring. Contractionary fiscal …show more content…
Tax rebates are used to stimulate the economy because, theoretically, if the government returns money to the taxpayers, the taxpayers should spend that money. The increased flow of money encourages the growth of the economy and increases job availability..Also, when consumers spend more money, producers gain more revenue. Tax rebates, in theory, instantaneously benefit both consumers and producers in that producers gain more profit and consumers are able to spend money they did not possess on purchasing goods they want or need. They are parallel to expansionary fiscal policy in that sense: they both aim to bolster economic growth. The average tax rebate awarded to U.S. citizens in 2015 was around $2,800, a substantial amount that can go a long way to repairing an economy, should everyone spend their money (Sahadi 1). However, tax rebates do not always encourage economic growth. Some people can choose to save their tax rebates, instead of spending them, or pay off debt with them, which, while it has delayed beneficial effects on the economy, does not instantaneously aid the economy as government officials hope. Government officials have very similar end goals in mind with expansionary fiscal policy and tax rebates, however, tax rebates are not one hundred percent foolproof, though neither is an expansionary fiscal
Contractionary fiscal policy prevails when government spending is cut and taxes are raised. This policy is used to slow economic growth to a healthy level and prevent a recession from occurring. Contractionary fiscal …show more content…
Tax rebates are used to stimulate the economy because, theoretically, if the government returns money to the taxpayers, the taxpayers should spend that money. The increased flow of money encourages the growth of the economy and increases job availability..Also, when consumers spend more money, producers gain more revenue. Tax rebates, in theory, instantaneously benefit both consumers and producers in that producers gain more profit and consumers are able to spend money they did not possess on purchasing goods they want or need. They are parallel to expansionary fiscal policy in that sense: they both aim to bolster economic growth. The average tax rebate awarded to U.S. citizens in 2015 was around $2,800, a substantial amount that can go a long way to repairing an economy, should everyone spend their money (Sahadi 1). However, tax rebates do not always encourage economic growth. Some people can choose to save their tax rebates, instead of spending them, or pay off debt with them, which, while it has delayed beneficial effects on the economy, does not instantaneously aid the economy as government officials hope. Government officials have very similar end goals in mind with expansionary fiscal policy and tax rebates, however, tax rebates are not one hundred percent foolproof, though neither is an expansionary fiscal