American Fiscal Policies and Economic Growth

1819 Words4 Pages
American fiscal policies and economic growth
Fiscal policy refers to the use of taxation and expenditure to impact on the economy of any country. Specifically, an economy of a country relies on the major instruments of fiscal policy which entails government expenditure on the various sectors of the economy and changes in the taxation system. As a result of the changes that the government can make on the two components for example through the ministries of finance or planning, various macroeconomic variables can be affected. These include income distribution, aggregate demand and allocation of resources. Apart from taxing the residence and non-residence, government expenditure can be funded through various other mechanisms. These include selling of fixed properties such as land, borrowing locally or globally and seigniorage among others. The three major stances of fiscal policy as indicated by Hansen 36 include contractionary, neutral and expansionary fiscal policies. Based on the wide range of activities that the US government spends funds on including security, healthcare, education and transport among others, it has to ensure that it has to ensure it has effective ways of collecting revenue. This paper will discuss American fiscal policy and economic growth.
In its effort to increase annual revenue and effectively provide public goods to its citizens, the US government has put effective taxation policies. Being set up on state as well as federal levels, US government has set up various taxes through which residents and non-residents are in a position to contribute to the economic growth of the country. Examples of taxes include capital gains, sales and income tax. Even though the major source of government is tax, federal taxes ...

... middle of paper ...

...t has been able to effectively collect high revenue from the large number of workers. Through the regulations such as the 1986 Tax Reform Act, the US government aims at curbing tax evasion which is a major challenge facing many countries. US economy is faced by challenges such as high wealth inequality and high expenditure in the sector of defense. This has made the budget to run in a deficit some years now. High revenue that the US government collect annually, has made the country to initiate various industries and research centers that have resulted to improved economy. Additionally, the increased number of wealth individuals has resulted to establishment of many small businesses that acts as a major source of employment. This has led to increased household income creating a high demand for goods and services produced by the country as well as the imported ones.

More about American Fiscal Policies and Economic Growth

Open Document