Fiscal policy

Definition: The stance taken by government with regard to its spending or taxation with a view to influencing the level of economic activity. An expansionary (or reflationary) fiscal policy could mean:

1...cutting levels of direct or indirect tax

2...increasing government expenditure

The effect of these policies would be to encourage more spending and boost the economy. A contractionary (or deflationary) fiscal policy could be:

1...increasing taxation - either direct or indirect

2...cutting government expenditure

These policies would reduce the level of demand in the economy and help to reduce inflation.