Fiscal Policy

Abstract

Strictly speaking, fiscal policy refers to the policy of the public treasury, but economists have narrowed this definition so that now it is taken to relate only to controls of the economy by government revenue (mainly taxation) and government expenditure. As with monetary policy, the primary historical objective of fiscal policy has been to influence the economy through the level of aggregate monetary demand. It is those fiscal controls that have dominated, but the government can also influence the supply of goods and services through the imposition of indirect taxes, such as VAT, and the use of grants and subsidies.