An Introduction to Economic Dynamics

6 DEBT, DEFICIT AND STABILISATION POLICY

DOI: 10.4324/9780429324406-6

In broad terms, fiscal policy is concerned with the role governments play in the market economy. Fiscal policy is a tool for governments to stabilise the economy when markets crash, to stimulate the economy during recessions, and to achieve their wider social objectives such as redistribution of income between different sections of society and the provision of public goods. Governments use a progressive (income) tax system and the transfers such as unemployment benefits and social security benefits to redistribute income across the income groups. This aspect of redistribution is one of the main reasons why fiscal policy remains more contentious than monetary policy. Fiscal ...