Fiscal policy looks at the amount the government are spending and the amount they are receiving. The government has the obligation to upkeep the country such as healthcare and roads, this all costs money.

They receive money to pay for these activities from taxes. Individuals must pay tax on the income they receive; companies must pay a portion of their profits to the government and consumers pay extra tax on most items they buy (VAT).

Therefore the government must ensure that they are not spending more than they receive.
This would lead to a Deficit and they will need to borrow money resulting is loan costs.

However they should also not spend much less than they receive as this may result in problems within the country as well as encourage inflation.

Hence the government implements policies to attempt to balance their income and expenditure.

Fiscal policies include policies over:

  • Tax
  • Printing money
  • Borrowing from abroad
  • How much government bodies may spend
  • Sale of countries assets e.g. land