The paper "Australia’ s GDP and Discretionary Fiscal Policy " is an outstanding example of a micro and macroeconomic assignment. The definition of the fiscal policy has evolved over time from the expression that Edwin R. A. Seligman used to criticize a German economist that suggested that governments should engage in some redistribution of income through their budgetary activities. However, the meaning of fiscal policy changed during the Keynesian revolution where it moved away from the revenues and tax side of the budget to include both revenue and spending. Therefore, from a Keynesians prospective fiscal policy refers to the manipulation of taxes and public spending to influence aggregate demand.
Fiscal policies are not necessarily meant to stabilize an economy but also reallocate resources and redistribute income. One assumption of the fiscal policy theory that the author uses is that there exists a unitary form of government in Australia that has the political power to set the desired objectives and change the policy instruments in the desired direction and by a needed magnitude (Battaglini & Coate 2014, p. 15). What this assumption means is that there exists an all-inclusive budgetary process and no public finance decision is made outside of the budget or at least, all decisions, whether in or out of the formal budget are directly or indirectly controlled by the government (Lewis 2002, p.
14). In addition, the fiscal policy theory also assumes that policy decisions made by the government are influenced by public interest. This means that policymakers always avoid making populist policies that go against the public interest even when the policies have short-run appeals that could help those in power win the next election.
In general, the fiscal theory assumes that the electoral cycle does not play a role in budgetary decisions (Augello & Guidi 2012, p. 102). The case study provides some fiscal policy measures that the Howard government put in place in the 2000-01 budgets. There is evidence to prove that the government operates a surplus budget as the forecasted surplus for the current budget was $1.5 billion. Another budgetary policy that was fiscal in nature was the tax break that the budget expected to bring forth for the older generation in Australia.
List of References
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Battaglini, M & Coate, S 2014, A Political Economy theory of fiscal policy an unemployment, Viewed from http://www.princeton.edu/~mbattagl/fpumay31_S.pdf
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