Chapter 30: Problem 45

Is expansionary fiscal policy more attractive to politicians who believe in larger government or to politicians who believe in smaller government? Explain your answer.

Short Answer

Expert verified

In conclusion, expansionary fiscal policy is more attractive to politicians who believe in larger government because it aligns with their goals of increased government involvement in the economy and improved public services. These politicians tend to support policies such as increased government spending on infrastructure, education, and social welfare programs. Conversely, politicians who believe in smaller government are less supportive of expansionary fiscal policy as they advocate for limited government intervention and prefer policies that promote private sector growth, such as deregulation and lower taxes.

Step by step solution

Defining expansionary fiscal policy

First, let's define expansionary fiscal policy. Expansionary fiscal policy is a set of government policies, such as increasing government spending and/or decreasing taxes, aimed at stimulating the economy and increasing the level of economic activity. This type of policy is generally adopted during a recession or economic slowdown to encourage growth, reduce unemployment, and increase consumer spending.

The effect of expansionary fiscal policy on government size

Expansionary fiscal policy often leads to an increase in government spending on public goods and services, such as infrastructure, education, and healthcare. This increased spending generally results in a larger public sector and, therefore, a larger government. On the other hand, reducing taxes may have a more indirect impact on government size, as it can stimulate private sector growth, potentially reducing the need for a larger public sector.

Politicians who believe in larger government

Politicians who believe in a larger government generally support the idea that the government should play a significant role in the economy, providing essential services, and regulating various aspects of society. These politicians would be more likely to favor expansionary fiscal policy, as it often involves increased government spending to stimulate economic growth. By doing so, they can create jobs, invest in public goods and services, and maintain social safety nets, which they believe can improve overall welfare.

Politicians who believe in smaller government

Politicians who believe in smaller government argue for limited government intervention in the economy, advocating for lower taxes, reduced regulation, and minimal government spending. These politicians are more likely to be skeptical about the effectiveness of expansionary fiscal policy, as it can lead to increased government intervention and spending. They prefer to focus on policies that promote private sector growth, such as deregulation, lower taxes, and encouraging investment.

Conclusion

In conclusion, expansionary fiscal policy is more attractive to politicians who believe in a larger government, as it aligns with their overall policy goals of increased government spending and involvement to create economic growth, improve public services, and support social welfare programs. On the other hand, politicians who believe in smaller government may be less supportive of expansionary fiscal policy, as they argue for limited government intervention and prefer to promote policies that encourage private sector growth and reduce the need for a larger public sector.