According to Didier (2011), fiscal packages instituted by world economies in past economic crises have been cultivated on the basis of countering the contraction in the economy.
By reducing or increasing the fiscal space, these policies help to alleviate the pressure on public spending. Governments normally utilize taxation as the most prominent tool in implementation of fiscal policies. Increases in taxes reduce the disposable incomes among households while increasing the revenues available to the government.
Contractionary fiscal policies are normally utilized when the revenues from taxations are lower than the level of government expenditure (The World Bank , 2011). On the contrary, expansionary fiscal stances are employed when the revenues from taxes are lower than the expenditure by the government. In times of a recession, the expenditure by government surpasses the level of taxes owing to the slump in demand, resulting to the need for expansionary fiscal policies.
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