Fiscal policy and the US economy Essay Example | Topics and Well Written Essays - 1250 words

Fiscal insurance and the US economy - Essay sampleAuerbach and Feenberg (2000) get down estimated that automatic tax stabilizers offset about 8% of the pretend of an economic shock to GDP.(Economic investigate and Data. The Role of Fiscal Policy. 2002)Mere anticipation of projected financial action can have an wedge on the U.S. economy. Households and business enterprises pass on operate their individual expense habits based on both bear witness economics as well as proximo economics. For instance, a tax cut will get out households will much 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 exist 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. ... It can also influence fiscal markets to anticipate future tax hikes. The implications are detrimental to the general economy. As a result, long-term interest rates will go up, investors will hold back somewhat on investments thereby circumventing the governments mean expansionary effects of its spending. During the countrys recession of the 1990-1991 fiscal year the President Bill Clintons Council of Economic Advisers (CEA) made a convertible observationan attempted input signal that abandoned, or was perceived to abandon, serious discipline on the growth of future spending or on the reduction in the multiyear structural deficit probably would produce a substan tial rise in interest rates. That would offset a large portion of the direct stimulus in the short run and would leave the economy thereafter with a higher cost of capital, which would be detrimental to investment necessary for long-run growth.(US President. 1992. p.25)According to Alesina, Perotti and Tavares a reduction in deficits are more likely to be expansionary when they entail government spending cuts and government salaries as well as transfers. These cuts have the effect of indicating decreases in government spending activity on a permanent basis and as a result there is a general public perception that taxes will be diminish in the future. On the other hand, decreases in the deficit which are accomplished via tax increases appear to be contractionary.(Alesina. 1998. pp-197-248.The US governments role in the nations economy cannot be accomplished by merely regulating its fiscal spending and management. The government can only achieve the best results possible for the good of the US