Fiscal PolicyLocked: included in All Access

How governments use spending and taxes to steer the economy: how fiscal policy differs from monetary policy, what it is for, whether a large national debt matters, the tools available and their pros and cons, the fiscal multiplier, and why judging and executing fiscal policy is harder than it looks.

1. 1. Monetary versus fiscal policy and the roles of fiscal policyFiscal policy is the government using spending and taxes to manage demand, share out income and allocate resources, while monetary policy is the central bank steering money and credit; both aim for stable, positive growth with low, stable inflation.Locked: included in All Access14 min
2. 2. Deficits, national debt and whether debt mattersA deficit is a one-year flow and the national debt is the stock of past deficits; whether a high debt-to-GDP ratio matters depends on growth versus interest rates, inflation, who owns the debt, what it financed and how long it lasts.Locked: included in All Access14 min
3. 3. Fiscal policy tools and what makes a good taxGovernments spend through transfers, current spending and capital spending and raise money through direct and indirect taxes; each tool differs in speed, potency and side effects, and a good tax system balances simplicity, efficiency, fairness and revenue sufficiency.Locked: included in All Access14 min
4. 4. The fiscal multiplier, balanced budgets and Ricardian equivalenceEach unit of new government spending is re-spent in shrinking rounds, so output rises by a multiple 1/[1 − c(1 − t)] of it; a tax-financed rise in spending still lifts output by one-for-one, and if Ricardian equivalence holds a debt-financed tax cut changes nothing.Locked: included in All Access14 min
5. 5. Fiscal stance and the difficulties of implementationThe actual deficit is a poor gauge of policy because it moves with the cycle and with inflation, so analysts use the structural (cyclically adjusted) deficit, and even well-judged policy is hampered by lags, uncertainty and wider macroeconomic limits.Locked: included in All Access14 min