President’s Dilemma: Fiscal Policy

Posted by: Evangel on: May 8, 2011

• In: Notes | Section 3: Macroeconomics
• 1 Comment

How can fiscal policy be used to help unemployed workers (like Joe Brezinski)?

Fiscal policy is a policy using changes in government spending and/or direct taxation to achieve economic objectives, one of which is reducing unemployment. As the council of economic advisors develop an economic policy, we are to employ fiscal policy to help unemployed workers:

1. Reduction of level of taxation

There are various types of taxation that can be altered to achieve economic objectives. However, in helping already-unemployed workers, taxation does not help much. Consider reduction of income tax. Though it is great for those who are employed, it does not help the unemployed workers. The reduction of sales tax, too, aids those with income. Nevertheless, the unemployed workers will not benefit much from this fiscal policy. Clearly, reduction of level of taxation is not a useful policy to adopt for the unemployed workers.

2. Increase of government spending

Government can spend in various areas, such as education, defense, and health. This moment, the percentage of government spending on each area is as shown in Figure 1.

(Figure 1) Total Spending for United States

In order to not increase the national debt much, some money spent in areas such as “defense” and “remainder” sections can be used to help the unemployed workers. As Campaign for Job Security (CJS) suggested, government can spend in training for the individuals that lost their job, so that the unemployed does not become unemployable workers. It may be good to give training/education to the unemployed workers, taking this time period as an advantage, so that they become more efficient in the long term. Government can also temporarily increase the amount of money given to the unemployed workers, helping them lead ordinary lives.

Tags: CJS, Dilemma, Education, Fiscal Policy, Government, Government spending, Income tax, Job, President, Sales tax, Taxation, Training, Unemployable, Unemployed, Unemployment