Tax and Spend: Why are authorities rethinking fiscal policy?


Authorities are rethinking fiscal policy. The main tool of stabilisation, monetary policy, is getting to the end of its road. So, people are looking around for other policy instruments that can either replace or augment monetary policy in stimulating demand.

“There are two sides to fiscal policy.” Says Peter Westaway, Chief economist and head of investment strategy group at Vanguard Europe.

“One is that the government can spend more money on goods and services or even on long term investment like infrastructure spending for example on roads.

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“The other is that the government can put money into the hands of consumers by cutting taxes, which is a way of boosting consumer spending; that's another way of boosting the economy.”

Peter continues: “This year, in 2016, fiscal policy in the euro area has actually been more generous than had really been intended. Some countries ended up missing their fiscal targets; that meant their growth was stronger than it otherwise would have been.”

For more, please see the full video above, or visit the Vanguard website.