How is the 'budget outcome' a tool of fiscal policy? Topic #4 (1 Viewer)

[sy37]

Only government revenue (taxation) and expenditure can be used to have impacts on the economy. The budget outcome is just a hypothetical outcome, is it supposed to influence speculation or something? I don't really get it. The budget outcome is influenced by both government revenue and expenditure, hence it's not really a tool as it is an indicator of the effects of the tools, something along the lines of that

eli5 please

 

[turnerloos]

Only government revenue (taxation) and expenditure can be used to have impacts on the economy.

You have the monetary policy as well genius.

 

[Evertone]

If the budget is in deficit then you can have political fights where a 'debt emergency' panics the country into saving up for a Divinely-induced recession. Falls in aggregate demand will almost always spell trouble for the economy.

 

[sy37]

You have the monetary policy as well genius.

Yeah I know, I was talking in terms of fiscal etc

 

[sy37]

If the budget is in deficit then you can have political fights where a 'debt emergency' panics the country into saving up for a Divinely-induced recession. Falls in aggregate demand will almost always spell trouble for the economy.

Right, so its more of a speculation kind of thing?

 

[Evertone]

Right, so its more of a speculation kind of thing?

Yep. You were right the first time.

 

[mreditor16]

Only government revenue (taxation) and expenditure can be used to have impacts on the economy. The budget outcome is just a hypothetical outcome, is it supposed to influence speculation or something? I don't really get it. The budget outcome is influenced by both government revenue and expenditure, hence it's not really a tool as it is an indicator of the effects of the tools, something along the lines of that

eli5 please

Changes in both government revenue (mainly revenue from taxation) and government expenditure have impacts on the economy, as you rightfully say. The budget outcome is just a nice singular number, which takes into account both revenue and expenditure. Economists and media outlets tend to prefer dealing with the budget balance in their publishing about the budget, as it means its just trends in one number they have to analyse.

 

[Ekman]

Well they use the budget outcome to coordinate future policy decisions as well, because as the OP said, it is a form of indicator. I guess it's like a two way street where policy decisions influence the budget outcome, and these policy decisions are influenced by the current budget outcome.