Fiscal Policy

Fiscal Policy describes the governments influence on economic levels by increasing or decreasing tax levels and government spending. The pure theory of voter’s behavior of rejecting the fiscal policy originates from the institutional sources of being biased because of the stimulus long-term fiscal deficit (Shughart & Razzolini, 2003). To boost its acceptance, the Federal Reserve should put in place a fiscal policy that results to lower taxes and low deficits than it would otherwise prefer in order to control the ability of the voters to embark on large spending programs. Shughart & Razzolini (2003) also indicated that the ideas of fiscal policy are based on choices in a given electoral period and therefore they should adjust fiscal variables such as spending, taxing and borrowing to low levels.

The other option which can be considered is based on the fact that since the current voters cannot make contracts with next period’s voters the government in place can limit future fiscal policy options by constructing a long lived fiscal policy project (Shughart & Razzolini, 2003). This strategy can be used to counter the notion of large fiscal deficits because they will be distributed for a long period of time. Shughart & Razzolini continue to indicate that this maneuver eliminates the voter’s notion of the stimulus being a large fiscal deficit (2003).

The government can also consider reducing the effects of contractionary fiscal policies which results from increase in tax rates causing voters to remit more income toward taxes therefore lowering their surplus income (Tax and Fiscal policy, 2009). On the other hand putting the right measures of decreasing tax credits for purchasing basic needs such as consumables and housing after the introduction of the stimulus will encourage the adoption of the fiscal policy. Through this the voters are assured of less fiscal deficits and thus support it. According to the article In the Shadow of Fiscal Policy (2008) by “Wall Street journal” the voters should be informed that increasing probability of fiscal stimulus reduces the chance that the economy will fall off. The article In the Shadow of Fiscal Policy (2008) further says that given all the uncertainties that remain about fiscal policy, and the strong asymmetry in underlying economic risks, the voters will have no reason to reject the stimulus thus easing fiscal policy adoption significantly.