Fiscal Policy Tools Applications - Essay Example

Two major fiscal policy tools are government spending and taxation. Government, through its fiscal policy, changes the composition of taxation to maintain sustainable growth of the economy. The taxation system is the main source of earnings of any government. As a result, it is very important to control the system in accordance with the requirement of the economy. Governments control the taxation system through their fiscal policy. Another tool is government spending. It is also important in the context of the economy of the country. The importance and applicability of government spending have become clearer during the period of the current global financial meltdown when governments have spent millions of dollars to save their respective economies and important organizations that were in trouble.

Government statistics on the budget balance and EU requirements for member countries
It is found that the budget deficit of the United Kingdom in the period of 2008-09 was around 90 billion euros. It is also found that the difference between the tax receipts and government spending was almost 12 billion euro (Seager, A. 22 April 2009). According to EU Business, the budget deficit of Germany will be more than 4% of the total GDP in 2010 (EU Business, 14 January 2009).

According to European Union’s growth and stability pact, each and every EU member must maintain its public deficits lower than 3% of GDP. Member countries must also keep their public debt below 60% of the total GDP.

EU budget and sources of financing and outlets for the funds’ use
According to European Union, its preliminary draft budget is 134 billion euros for 2010. This was first declared in the month of April 2009 (Europa, April 29, 2009).

Differences between the U.S. fiscal policy and that of the E.U. member
US fiscal policy is found to be very much aggressive as compared to the fiscal policies adopted by the EU members. According to Timothy Geithner who is the Treasury Secretary of the U.S., the country will see more aggressive fiscal policy in the future (Reuters, Feb 3, 2009).

Conclusion – fiscal policy as an economic stabilization mechanism
Fiscal policy is crucial for economic stabilization as it includes factors like government spending and taxation. Read More