Running head: ARTICLE REVIEW: FISCAL POLICY 1

Article review, Fiscal Policy by David Weil

Name

University
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Article review, "Fiscal Policy" by David Weil

Article to be reviewed

Weil, N. D. (n.d.). Fiscal Policy. Econlib. Retrieved from

https://www.econlib.org/library/Enc/FiscalPolicy.html

In the article Fiscal Policy, David Weil, we are taken through the standard definition of

fiscal policy, as the name suggests. Through reading, I realized that the author was basing the

fiscal policy concept on the government perspective where recession and boom are factors.

However, he has managed to put up a good argument about the topic. He starts the article by

presenting the idea of fiscal policy as an element of the economy. He bases his argument by

providing statistical evidence and historical figures.

Weil begins by pointing readers through a quicker application of the concept of fiscal

policy in economic taxation and spending. He then presents statistical facts and figures of the

federal budget spending from 1962–2003 (Weil, n.d.). He also talks about the primary effect of

fiscal policy.

Changing fiscal policy would mean interfering with aggregate goods and services

demand where one of two channels gets strained. A change also interferes with the composition

of aggregate demand (Weil, n.d.). In a common scenario, this can be applied in a government

experiencing recession whereby a tax stimulus is applied to increase the aggregate demand and

propel economic growth. This approach is based on the low taxes paid by people meaning that

people have more funds to invest or spend, fueling high demand. The author's argument provides

readers with a quick overview of the concept of fiscal policy based on demand.
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The author illustrates that trade balance and exchange rate is affected in the fiscal policy

of an open economy. Raising interest rates because of government borrowing would attract

foreign capital when a fiscal expansion is exercised. He informs readers about the effect of

performing fiscal expansion in trade activities. We see that it allows the U.S. to import goods at a

lower price and export them at a higher price. It is critical information since we get to know how

to trade activities are influenced by fiscal policy and realize the effect on states which do not

practice the same.

Moreover, we are presented with the case in terms of the national debt and government

asset acquiring. Many states can perform fiscal expansion in trade activities and enjoy better

import and export options. It can also suggest fair trade activities. Similarly, it can affect the

quality of goods imported to the U.S. while the nation exports high-quality goods.

Weil presents us with the importance of fiscal policy in economic management,

particularly the GDP, as it can affect the total output. He emphasizes the impact of fiscal

expansion on GDP (Weil, n.d.). The business cycle determines the demand for goods and

services. An economy facing recession can profit from increasing fiscal policy where prices will

be higher while the output becomes lower.

He suggests that fiscal policy can lead to economic stabilization when a government

faces a recession and solve the problem of unemployment. This way, economic growth is

maintained and balances the budgets. He also suggests programs that governments can

implement during recessions and booms, such as automatic stabilizer programs. He gives an

example of unemployment insurance and tax code (Weil, n.d.). In a way, these applications all

reflect on government economies that are experiencing problems.

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Weil presents the stance of other economists on the impact of fiscal policies on future

taxes and how customer savings are influenced. The economists imply that a current tax cut

would mean higher future taxes. These saved taxes would be used to pay for taxes in the future.

This is a concept of the Ricardian equivalence, which, according to Weil, will not influence

national savings because private savings would equate government savings (Weil, n.d.). He

argues that perhaps the economists were wrong on their argument and that his argument about

budget deficits crowding out private investments would not be right (Weil, n.d.). He argues that

the Ricardian equivalence cannot help the government solve its economic issues as spenders will

spend the surplus funds they receive from tax cuts. It will only raise aggregate demand while

lowering national savings. He also mentions the take of most economists regarding the Ricardian

equivalence in relation to tax changes. These arguments suggest that the nature of economy is

not subject to tax cuts nor the Ricardian equivalence.

Towards the end, the author mentions how fiscal policy affects the national economy

through incentive changes. He suggests that when taxing is done, it can discourage the activity.

This can be meant to say that any reduction, taxes or general deductions would not determine

national economy as the government can still maintain output and even increase it.

The author concludes by mentioning the challenge of using fiscal policy in stabilizing

fluctuations in the long and short runs on natural production. He mentions that a change would

lead to other changes that will provide advantages or disadvantages of the economy in different

settings. He says that the resulting factor for this change is an institutional enthusiasm in a

recession that is not equated by varying policies during a boom. He mentions that the benefits of

an expansionary policy will suddenly be felt. According to him, a good fiscal policy during

recession or boom depends on political factors and not economical.

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