Fiscal and federal policy

¶ … policies, discuss the way fiscal policy can influence the macroeconomics aspects related to one country and how and when the full employment situation can be achieved. The conclusions at the end will sum up the presented premised and will make an evaluation of the matter.

The Government of one state generally follows the best interest of the ordinary citizen. It is more than words, the observation of individual's needs and desires are the necessary elements for successful future elections. A satisfied individual will automatically transform himself in a confident voter for the Government that elaborated the policies of fiscal, economical or social nature which improved his life.

On the other hand, a Government who probably embraced strong fiscal and economic reforms, with positive long-term results for the population, may be victims of the electoral process. The State may use various means by which it can obtain its objectives, and the fiscal and federal policies are just two of these above mentioned means.

Fiscal Policy

To put it in just a few words, the fiscal policy it the level of taxation a Government selects and the way the funds are used for meeting the overall objectives of the Executive body, and more specifically of the country. For a modern economy, the revenues obtained from tax collection represent the sole source of income for a Government. After the end of the collection process, the officials must decide an expenditure strategy so as to positively influence a large proportion from the entire population and improve their life conditions, by offering more social benefits (hospitals, schools) or improving the infrastructure level (transport, telecommunication) for example.

The fiscal policy adopted in one country greatly influences the macroeconomic development of that state. The individual companies and ordinary citizens sense the impact of a high taxation, in that companies will have reduced profits and individuals a reduced consumption due to less available revenue. In turn, low consumption leads to low level of economic growth, but also to low inflation. Gross Domestic Product is also distorted by taxation, as every integrant component - consumption, investment, savings and net foreign position are deeply influenced, directly or indirectly, by level of taxes. A liberal fiscal policy, with lower taxes, encourages individuals and companies to develop and register important economic growth rates, but induces an increasing inflation rate.

Federal Policy