The Analysis of the Fiscal Policy - Essay Example

Analysis of the two Articles Bad fiscal policy has devastating effects on the labor market especially when the government had not put in place adequate measures to rectify such policy. Many countries around the world have invested immensely in policy formulation to meet the demands of the rapidly growing labor markets (Mishkin 34). However, inadequate and derisory consultations among top technocrats and fiscal policy formulation pundits have led to emergence of dire consequences not only on the labor market locally but also in the global arena. Many development partners around the world would effectively cut business links with the country in attempt to protect their own economies. Apparently, taxation policies as well as government spending have considerable effect on the economy and future prospects of the government as far as international relations are concerned. Taxation policy must take into account the fundamental rights of all workers in an economy (Mishkin 34). The government should particularly take into account the total population of its workforce during a given financial year even as it plans bring the fore the budgetary estimates. Since the budget of most countries is largely dependent on the local taxes as the main source of funding, the wage rate per worker will be a key factor. Taxation policy should not compromise the worker’s ability to meet their day-to-day needs to keep life moving (Mishkin 34). Hence, fiscal policy makers must take into account the wage rate, currency strength locally and internationally, and the cost of living. The government must therefore consider the current situation of its labor market before making any critical additions regarding purchasing goods and services, distributing transfer payments, and collecting taxes. If the current trend were unfavorable to the economy and labor market, the government would then have to revisit its fiscal policy to save the situation (Mishkin 34). An increase in amount of taxes that employees pay to the government will adversely affect their disposable income. In most cases, the taxation policy that triggers increases in taxes paid to the government tends to lower the purchasing power of most households. Thus, a considerable number of people working in manufacturing and service industries among other forms of industries will have to relinquish certain commodities that were previously a necessity to them (Agell 25). The main area of concern for fiscal policy is looking into ways in which changes in the government budget affect the overall economy. The changes may not only compromise the capacity of the government to meet its policy needs but also providing essential services to the people. Heads of country’s finance or treasury department are on the verge of drafting fiscal policy that is realistic and achievable considering the strength and sustainability of the current economic state of the country (Agell 25). The flagship annual document of finance ministry essentially reviews the growth and developments of the economy. Of critical value is the capacity of the economy to withstand the constantly changing economic, social and political prospects. Fiscal policy further affects the quality of labor in the market. If the government spending surpasses its total revenues, one of the major options it employs to save the situation is raising the taxation rates. The increase shall take a toll on struggling employees, who in most cases hardly meet all their necessities. Hence, policy prospects should be workable and sustainable in the short term and long term despite the impending challenges to the economy during implementation of its programs. Under such circumstances, employees and business organizations will essentially react by initiating strategies of ensuring the government policy does not compromise their day-to-day lifestyle (Agell 25). In the wake of growing concerns about bad fiscal policy, most employees as well as prospective workers have resorted to look for employment opportunities in the neighboring countries. This has led to serious brain drain, a situation that has further hampered the government’s effort to obtain quality labor for its economy. Apparently, dissatisfied workers would seek employment in companies abroad where taxation policies are favorable and the cost of living is sustainable in the short term and long-term basis. The fiscal as well as monetary policies are moving in tandem towards addressing growth and development concerns of the economy (Agell 25). The monetary policy is too concerned about the strength of the economy with special consideration being the amount of money in circulation. Every government must work assiduously towards making sure the rate of inflation is all time low, steady, and predictable. The central bank, commercial banks and other financial institutions must work within the set parameters to ensure inflation does not erode the economy. Despite posing several challenges to most economies of the world, inflation has emerged as powerful that countries use to gauge their performance relative to that of its neighbors and development partners. However, each country has unique policies that guide its economic prospects as well as currency strength locally and in the global arena. The capacity of an economy’s currency more valuable than any other currency in the region would depend on the fiscal policy measures among other factors initiated by the government through policymakers. It is incumbent upon the government to establish strong financial institutions that would effectively deal with cases of inflation in an economy. Many countries around the world are particularly concerned about the conflict that has existed between fiscal policy, monetary policy, and the local and international labor laws. Apparently, several governments put a lot emphasis on mechanisms and strategies whose outcome are colossal revenues and low inflation rates. Although the motive seeks to protect the typical worker and economy in entirety, it might hamper realization of the wishes of the labor market (Mishkin 34). Key among the proposals of the government is cutting down its expenditures to reduce the national debt. In effect, most governments worldwide have shifted the gear and strategy to raise more finds by encouraging local borrowing. This has perhaps provided solution to public uproar as regards the traditional trend where most governments subject citizens to high taxes to complete projects, which have probably stalled. In the analysis of the two articles, it is indispensable to emphasize the need to review the fiscal policy to make it work to the advantage of all parties (Mishkin 34). Although the government has exclusive right and authority to draft the fiscal policy, it is important that the policy does not conflict with those of the labor market or even threaten to derail business enterprises and worker’s remuneration. In order to pay the debts, the government should consider looking for other viable avenues instead of increasing taxes or borrowing locally or even from foreign agencies. Apparently, borrowing whether from local or international sources will only subject the nation to more problems, as the national budget will become bigger. Despite the favorable monetary policy that have positively affected trading in stocks, fiscal policy still endangers sustainability of the economy on long-term basis (Mishkin 34). Potential investors locally are likely to shy away from investing in stocks market since the policy triggers a considerable reduction on the amount of disposable income. Their purchasing power becomes low since they have to forgo certain goods and services that were previously a necessity. In many countries, the government controls both its fiscal and monetary policies on regular basis (Braun 16). As a precautionary measure to threats of inflation, governments have gone ahead to postpone certain projects which are technically unachievable due to the impending budget constraints. In essence, bad monetary policy has substantial effect on the fiscal policy and vice versa. The government must further take an initiative to ensure the fiscal policy supports job creation notwithstanding various cost-effective elements affecting the economy. Finance ministry and departments has to play significant part of establishing policies that do not conflict as far as inflation and expenditure are concerned (Braun 16). The two components of monetary policy framework (inflation-control target and flexible exchange rate) should match the expectations of the government spending prospects while at the same time taking into account the looming inflation. The fiscal policy is somehow accommodative as compared t the monetary policy (Braun 16). In as much as it affects the labor market, the fiscal policy play critical role in determining whether the government is likely to meet all its financial and budgetary obligations. Even rich countries experience monetary and focal constraints. However, they have put in place more reliable and sufficient strategies to deal with any form of inflation or careless expenditures that might compromise the wishes and desires of the government and the people (Braun 16). Works Cited Agell, Jonas. Tax Policy and Labor Market Performance. Cambridge, Mass. [u.a.: MIT Press, 2006. Print. Braun, D. (2003). Fiscal policies in federal states. Burlington, VT: Ashgate. P. 16 Mishkin, Frederic S. Monetary Policy Strategy. Cambridge, Mass. [u.a.: MIT Press, 2007. Print. Tucker, Irvin B. Survey of Economics. Mason, OH: South-Western Cengage Learning, 2011. Print. Read More