Question

Some economists have argued that expansionary fiscal policy (especially when it is composed of increased government spending) can be motivated by politics and “vote buying” as well as economics. How so?

Answer 1

Fiscal policy can be defined as the use of taxes, government spending and transfers to regulate the economy.

Expansionary fiscal policy can be motivated by politics and “vote buying” as well as economics because "vote buying" is a means of increasing government expenditure

There are two types of fiscal policy.

• Contractionary fiscal policy: This in an economic situation when government increases tax and decrease its spending to regulate the economy.

• Expansionary fiscal policy: This is the reduction in tax and increase in expenditure by the government to stabilize the economy. Expansionary fiscal policy is a tool used by government to reduce unemployment.

Therefore,

Expansionary fiscal policy can be motivated by politics and “vote buying” as well as economics because "vote buying" is a means of increasing government expenditure leading to an increase in the amount of money in circulation.

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