CS Question #1: What purpose do fiscal policies serve for governments?

A contractionary fiscal policy is used to reduce or stop increases in inflation levels. These policies involve increasing taxes. The goal is to slow the growth of the economy by reducing the amount of money available to consumers to spend. An expansionary fiscal policy is used to stimulate economic growth. These policies involve reducing taxes. They also include an increase in government investment in the public sector. The government spends money on the infrastructure of the economy. The most common area of spending is on public works projects. The goal of expansionary fiscal policies is to increase the general level of spending in the market. Unitary and federal nations approach the creation of fiscal policy in different ways.

A unitary government, such as the United Kingdom, is a central authority. This government possesses the principal powers. The elected central government appoints the state, local and provincial governments. These smaller governments are simply an extension of the central government. All of the laws and policies of the central government are carried out by the smaller governments. Consequently, there are no obstacles to the creation of a complete fiscal policy for the entire nation. Of course, the government must consider the welfare of the local and provincial regions when determining fiscal policy. However, the government does not have to be concerned about those policies being opposed by governments at the local and provincial levels.

CS Question #3: What concerns does a unitary nation have in the development of a fiscal policy?

Federal governments occur when a number of states or provinces decide to establish a single nation. The government of the United States is an example of a federal government. The power and administration of policy is divided between the local and national governments. This gives the local governments the power and right to set their own fiscal policies. Any national fiscal policy must take into account the differences of all states. In the United States, any national fiscal policy approved by Congress must address the concerns of each of the fifty states. National fiscal policy could cause economic progress of one state at the expense of another state. Often, individual states remain unaffected by the national policy. It is also common for the fiscal policies of states to manipulate the level of taxation. They do this to counteract efforts of the broad national fiscal policy. These actions can hinder the economic goals set by the federal government.

CS Question #4: What concerns does a federal nation have in the development of a fiscal policy?

Further Thought:

1. Is it healthy for a nation's economy to pursue and maintain either a contractionary or an expansionary fiscal policy for an extended period?
2. In a federal government, what specific kinds of tax conflicts could occur between the national and local governments?
3. What aspects of fiscal policy, if any, should be left entirely to the consideration of the state or local government?