Series 79: Fiscal Policy

Fiscal Policy

Fiscal policy refers to a government’s policy of using taxes and spending to affect economic performance. While both fiscal policy and monetary policy represent attempts by governments to manage their economies, they are distinct. Fiscal policy is based on the theories of the twentieth-century British economist John Maynard Keynes, and for this reason, the use of fiscal policy is often referred to as Keynesian economics.

The basic theory of fiscal policy is that a country’s economic output, and thus business cycles, unemployment, inflation, and other economi