What is a fiscal policy?
All of the recent talk has been about the government's fiscal policy going forward, but what exactly is a fiscal policy and how can it affect the UK economy?
In simple terms a fiscal policy is the balance between government taxation received from the population and government spending on public services. The balance between these two figures will determine exactly what type of fiscal policy the government has implemented.
A neutral stance
As the term suggests, a neutral fiscal policy would see government spending broadly equal to the taxation income received from the population. This means that government debt will remain unchanged and public services financed wholly from taxation receipts.
An expansionary stance
This is the situation whereby government spending is higher than taxation income, similar to the situation we are seeing today. Often referred to along with terms such as "budget deficit", an expansionary fiscal policy will see an increase in government debt.
A contractionary fiscal policy
A contractionary fiscal policy is determined when government expenditure is less than taxation income and often mentioned in the same breath as the term "budget surplus". A contractionary policy will allow the government to either maintain a surplus or repay part or all of any outstanding government debt.
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