ABSTRACT
Fiscal policy is the practice and art of affecting economic activity by changing tax rates and government spending for final goods and services (G&S). It is an important macroeconomic tool that can have beneficial or harmful effects on an economy, depending how, when, and where it is used. When national governments spend more than they receive in tax revenues, they usually borrow to finance these deficits. A deficit is measured over a period of time, such as a quarter or year, and the sum of all these deficits minus the amounts a government has repaid is called the national debt. Structural deficits and surpluses are estimated by taking the difference between what government spending and tax revenues would be if the nation were at full employment. When a nation's gross domestic product (GDP) falls, automatic stabilizers are activated in the form of increased government transfer payments to finance social welfare programs, such as subsidies and unemployment compensation.
