What are Discretionary Fiscal Policies and Automatic Economic Stabilizers?

What are Discretionary Fiscal Policies and Automatic Economic Stabilizers

Today in this article we will talk about What are discretionary fiscal policies and automatic stabilizers of the economy? on the one hand, a fiscal policy it is an economic policy, which, through instruments and measures, serve for the state to obtain income, being mainly through taxes, to later be applied in public spending, benefiting the population and the nation.

Fiscal policies have a variety of objectives, such as stabilizing the economy, increasing the nation’s growth, creating equity and a new income distribution, these are some examples of the objectives pursued by fiscal policies.

On the other hand, the automatic stabilizers of the economy are a set of elements that are part of the general budgets of the nationThese seek to maintain an order in the economy in a natural way.

Next, we will take a more in-depth look at Discretionary Fiscal Policies, and the automatic stabilizers of the economy, explaining each of these.

calculator on sheets

What are fiscal discretionary policies?

Within fiscal policies, there are several types, one of these being fiscal discretion policies, which are used by the state intentionally, in order to have an influence on public expenditures or revenues.

They have the disadvantages that have a delay in their application, since they require certain procedures of a political and institutional nature to take action.

Despite their delays, they give the advantage of acting on the problems, in a direct way. We can mention several discretionary tax policies.

  • As are public works programs, aiming to increase employment, thanks to hiring making it easier to get jobs, and providing a better infrastructure for the nation.
  • Job training strategies, hiring and training workers, resulting in a better insertion to the labor market in the country, contributing to all citizens and the economy.
  • Increase in public transfers, this measure, protects the less favored sectorsOne example being study grants, pensions and unemployment benefits. This to mention a few.

We can take these measures, such as discrete fiscal policies, which if well administered, bring benefits to the economy and main sectors of the country that is applying it. However, there is a probability that it will fail due to the misapplication of discretionary fiscal policies.

What are automatic stabilizers of the economy?

Economic stabilizers, as we mentioned at the beginning of this article, are the in charge of minimizing the effects of economic cycles, this automatically.

These stabilizers have a influence with respect to economic activityAll without intervention from the public sector of the economy.

These have the disadvantage of not being enough to deal with the large rises or falls in economic activity.

One of its main characteristics is to be countercyclical, being restrictive in periods of expansion, and expansive in periods of recession. Some of these cheap automatic stabilizers are.

The use of taxes, which are adaptable for each phase of the economic cycle in which a nation finds itself. In the event of an economic crisis, taxes are reduced, because there is less income.

While in situations where there is more prosperity, the taxes at par, of income. There is also a factor that works in the same way as taxes, they are social contributions.

Another automatic economic stabilizer is unemployment subsidies, which have the motive of reducing the problems presented by the unemployed workers. This means that in seasons of economic unemployment, it serves to supply the families affected by this situation, with lack of savings or thrifty culture.

unemployed worker falling

We hope this article on What are discretionary fiscal policies and automatic stabilizers of the economy has been useful to you? which help to reduce negative effects on the economy, being implemented by the governments that go through, at times economically complex.

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