Fiscal policy

Fiscal policyTermCar insurance×تأمين السياراتA contract that covers the cost of damage to your vehicle or injury to others, depending on the type of policy you hold.Open the term is how a government uses its budget to influence the economy. It has two main tools: spending (on infrastructure, salaries, services, subsidiesTermSubsidy×الدعمMoney or price support the state provides to keep the cost of essential goods or services below what the market would charge.Open the term) and taxation (income tax, sales tax, corporate tax, duties). When a government spends more than it collects in tax, it runs a deficit and must borrow. When it collects more than it spends, it runs a surplus.

Fiscal policy reaches into your household through multiple channels. A change in income tax or sales tax directly affects what you take home and what you pay for goods. Government spending on infrastructure, education, or healthcare shapes the services available to you and the jobs that exist. Subsidies on fuel or food change what you pay at the pump or the market. When a government borrows heavily to finance spending, it can push up interest ratesTermInterest rate×سعر الفائدةThe percentage of principal charged by a lender or paid by a saver, usually stated as an annual rate.Open the term across the economy, making personal loans and mortgagesTermMortgage×الرهن العقاريA loan secured by property, where the lender holds a claim on the house until the debt is repaid.Open the term more expensive. Conversely, tax cuts or increased spending can boost employment and wages, though they can also drive up prices if the economy is already running at capacity.

• Fiscal policy works slowly. A change in government spending or tax law takes months to pass and more months to affect household behavior and prices.
• It is distinct from monetary policyTermMonetary policy×السياسة النقديةThe decisions a central bank makes about interest rates and the money supply to manage inflation, employment, and economic stability.Open the term, which is what the central bankTermCentral bank×البنك المركزيThe government's bank, which controls the money supply, sets interest rates, and oversees all other banks in the country.Open the term does with interest rates and money supply.
• A government's fiscal choices accumulate: persistent deficits build up public debt, and persistent surpluses pay it down. The stock of debt shapes future fiscal choices.
• Fiscal policy can be expansionary (more spending, lower taxes, intended to boost growth) or contractionary (less spending, higher taxes, intended to cool inflation or reduce debt).