Fiscal Policy: Limitations and Negative Consequences

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Table of Contents

Abstract
Introduction
Limitations, Problems, and Consequences of Fiscal Policy
Relevance of Current Proposal in My Life
Conclusion
References

Abstract

The primary goal of the paper is to highlight the limitations and negative consequences of the fiscal policy. The federal government utilizes the fiscal instruments such as control of the debt, taxation, and changes of the legal and regulatory systems. Nonetheless, the critical drawbacks are related to the lack of the information and application within the wrong economic cycle. In turn, the adverse consequences of the wrong application are the lack of investments in the development of the social infrastructure, budget deficit, and decrease in the public sector and productivity. However, the current fiscal proposal has a positive influence on my life, as it actively support the college education and career development.

Introduction

Firstly, fiscal policy can be defined as the ability of the governmental authorities to control the revenue and expenditure of the state treasury while influencing the order in the country and improving economic conditions simultaneously (Dwivedi, 2007). In this instance, the federal government is able to utilize taxation, modifications of the legal systems, federal investment, federal debt and borrowing, and by having an influence on the supply and demand, and social budgeting and working habits (Congressional Budget Office, 2015). It remains evident that the crucial goal of fiscal policy is to maintain the balance between expenditure and income while providing favorable conditions for the economic development.

Nonetheless, despite having initial positive intentions, fiscal policy might have adverse impacts such as lack of the expenditure on the social service, decrease in productivity due to tax cuts, budget deficit, minimization of the public sector due to presence of the lack of information, application within unsuitable timeframe, and consequences of the wrong implementation. The primary goal of this essay is to depict the limitations and issues of fiscal policy. In turn, it is critical to focus on the relevant of the current proposal in my life. In the end, the conclusions are drawn to summarize the findings.

Limitations, Problems, and Consequences of Fiscal Policy

Firstly, the primary limitations of the fiscal policy have to be discovered. Firstly, the lack information might lead to the application of the wrong adjustments. In this case, the lack of rational proof for the particular actions is one of the limitations (Taylor, 2009). Consequently, this problem might lead to the application within the wrong timeframe and lead to the adverse consequences, as the tools during the recession stage are not suitable during the time of growth.

Secondly, the initial consequences of the wrong implementation are assessed, and the lack of expenditure in social service is one of them. Reducing the number of jobs and spending in the social sector are the primary goals to find the balance during the recession stages (Romer, 2010). In turn, the government was able to compensate the unemployment difficulties and taxation system by $787 billion to the American families, but it could have been avoided (Romer, 2010).

Additionally, it might be a reason for the decrease in productivity due to the tax reductions and create a budget deficit. Both of these factors are related to the implementation within the wrong timeframe, as decreasing the tax during the recession stage will be a primary cause of imbalance between income and spending. Lastly, the insufficient use of the fiscal policy can be a cause of the minimization of the presence of the public sector in the national economy. Despite the ability to adjust the operations of the public sector, the fiscal policy might be a primary reason for its decrease due to the necessity to monitor other parts of the economy more efficiently and creating favorable conditions for their existence (Mejia & Diaz, 2014).

Relevance of Current Proposal in My Life

A current proposal for the formation of the fiscal budget focuses on the development of the country from the social perspective. In this instance, it has states of governmental expenditure, which aims towards the development of the favorable conditions to college students and innovation in various spheres (Office of Management and Budget, 2016). In turn, it aims at offering a tax reduction for the families with children to provide the families with the affordable healthcare (Office of Management and Budget, 2016).

It remains evident that this act does not cover the presence of the current taxation, but these states of governmental expenditure vehemently affect my life as a college student. Now, I have higher opportunities for receiving financial aid for my studies and future education. In turn, it motivates me to pursue a career in the area of my education, as I will be able to find a job, which suits me the most.

Conclusion

In the end, the fiscal policy has positive intentions of maintaining the balance in the economy and maintaining favorable conditions to the society. Nonetheless, the wrong application of its principles might have an adverse effect on the society in the form of the reduction of the public sector, creation of the deficit, and lack of the well-developed social infrastructure. Nonetheless, these events tend to occur due to the absence of the relevant information about the current condition of the economy. In turn, it leads to the usage of the fiscal policy instruments within the wrong timeframe. Nevertheless, the current budgeting proposal has a positive influence on my education and career development, as it pays high attention to the support of the students and young professionals.

References

Congressional Budget Office: Economic effects of fiscal policy. (2015). Web.

Dwivedi, D. (2007). Macroeconomics: Theory and policy. New Delhi, India: Tata McGraw-Hill Publishing Company Limited.

Mejia, P., & Diaz, A. (2014). The restoration of public sector of Mexico through the fiscal policy and the contemporary economy. Journal of Economic and Social Development, 1(2), 68.

Office of Management and Budget: The President’s budget for fiscal year 2017. (2016). Web.

Romer, C. (2010). Treatment and prevention: Ending the great recession and ensuring that doesn’t happen again. Web.

Taylor, J. (2009). The lack of an empirical rationale for a revival of discretionary fiscal policy. The American Economic Review, 99(2), 550-555.

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