Understanding Economic Policy: Types and Fiscal Strategies

Economic Policy

Economic policy involves state intervention in the economy to achieve economic objectives, such as economic growth, full employment, and price stability. Key organizations directly implement economic policy. Indirectly, various groups like banking institutions, large multinationals, and entrepreneurs' associations also play a role.

Types of Economic Policy

• Fiscal Policy: Intentional state action to increase or decrease economic activity through funds and taxes.
• Monetary Policy: Measures taken by the central bank to maintain price stability by varying the amount of money in circulation.
• Foreign Policy: State interference to regulate transactions with other countries, such as changing the currency exchange rate.
• Rental Policies: Aim to achieve price stability by controlling inflation.

Economic policy intervention in the economy aims to achieve objectives related to production, employment, and prices.

Fiscal Policy

Fiscal policy is the intentional action of the public sector through the collection and application of funds for public expenditure.

Types of Fiscal Policy

Discretionary Fiscal Policies

Governments apply these to influence income or expenditure. The main types are:

• Public works programs
• Employment and training plans
• Transfer programs
• Tax modifications

Automatic Stabilizers

These are public expenditures or income that increase or decrease to adjust the production level of a country. The main types are:

• Proportional taxes
• Progressive taxes
• Social contributions
• Employment subsidies

Budgetary Balance

Policies based on the Keynesian model advocate that the state should borrow to achieve full employment and stability. Neoliberal policies criticize state debt.

Types of Deficits

• Cyclical Deficit: Occurs during inevitable economic recession cycles.
• Structural Deficit: A permanent deficit that persists even near full employment.

To finance the deficit, the state can:

• Issue public debt
• Raise taxes
• Increase money circulation