Discretionary fiscal policy refers to those aspects of the budget over which the federal government exercises control. It is a type of fiscal policy that is used by the government to influence the level of spending and taxes in order to stabilize the economy in a desirable way. A discretionary fiscal policy mainly involves deliberate or purposeful government actions to alter aggregate demand and stable the economy's business cycle by making the changes in government spending, taxation and transfers (Layton, Robinson & Tucker, 2011). To cut tax rates and increase spending on education and infrastructure development are the examples of this type of fiscal policy.
It is an effective policy tool that is useful to improve economic performance of a country through promoting macroeconomic goals like steady economic growth, rise in employment and price stability. Discretionary fiscal policy is a demand management policy that applies to increase or decrease aggregate demand in order to smooth economic fluctuations within the country (Arnold, 2010). There are two types of a ...
The expert explains discretionary fiscal policy. How the government uses taxes and government spending to influence unemployment, inflation and economic growth is determined.