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Fiscal Policy and Its Implications in << FRANCE >> - Research Paper Example

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Economists term these weaknesses as “market failure”. This gives an impetus for the government to intervene in the economy (Stieglitz,…
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Fiscal Policy and Its Implications in << FRANCE >>
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Download file to see previous pages The main point of fiscal policy is to keep the surplus/deficit swings in the economy to a minimum by reducing inflation and recession” (Cyber Essays).
The important role that fiscal policy plays in the entire economy is to maintain full employment and stabilize growth. “A change in tax rates is usually implemented when inflation is unusually high, and there is a recession with high unemployment. With high inflation, taxes are increased so people have less to spend, thus reducing demand and inflation. During a recession with high unemployment, taxes are lowered to give more people money to spend and thus increasing demand for goods and services, and the economy begins to revive” (Buzzle.com). On the other hand, “a change in government spending has a stronger effect on the economy than a change in tax rates. When the government decides to fight a recession it can spend a large amount of money on goods and services, all of which is released into the economy” (Buzzle.com)
France’s data of government balance is recorded from 1980 up to the present. The figures reveal that France has always experienced a budget deficit from -.202 in 1980 to -66.2 in 2008 (Stanley St Labs.). It posted its largest budget deficit in 2003 with -65.684 (Stanley St Labs.). For the years 2009 – 2010 the forecasted budget deficit are -118.711 and -124.935 respectively. The general government balance was also computed as a percentage of GDP. France’s figures for the last three years (2006-2008) are -2.399, -2.676 and -3.4 (Stanley St Labs.). These figures are expected to increase in the next two years.
The European Union’s requirement is the following: “If a state’s budget balance slips below -3% of GDP and is not soon corrected, the European Union will fine the state. The basic idea is that the minimum budget balance standards should guarantee that no state finds in danger of defaulting” (Guy Peters).
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