Fiscal Policy Essay Example | Topics and Well Written Essays - 1000 words

Fiscal Policy - Essay Example However, fiscal policy is more effective in the short-run as in the long-run there is stabilizing economic forces that ensure the output moves back to its potential (Taylor, 2009). The fiscal policy involves increasing government spending or reducing taxes to stimulate aggregate demand or vice versa to reduce demand. Some countries focus on the supply-side of the economy to ensure a more permanent change. The paper will discuss the effects of fiscal policy on the economy. Taxation Expansionary fiscal policy involves cutting taxes and increasing government spending. Taxation is a source of revenue for the government to fund expenditure. If it decides to cut taxes, then it runs a budget deficit. A reduction in income tax leaves individuals with more disposable income to spend on consumption thus raising aggregate demand. As demand increases, the producers are forced to produce more and employ more factors of production. This leads to more output and employment and increased economic ac tivity (Sexton, 2008). However, income tax can only be adjusted annually on the budget hence it is difficult to apply this policy. It also depends on whether the households use extra income for consumption and not saving since savings is a withdrawal from the circular flow of income. The government can also increase transfers such as unemployment insurance, and in turn disposable income leading to more consumption (Riley, 2006). Lower taxes and increased transfers act as an incentive for workers to add more hours and increase productivity hence increased output and employment. Increasing taxes acts as a disincentive to work. If workers get less income by the end of the day compared to what they were getting, they would be dissatisfied and would not be willing to work extra hours. However, some would put more hours to cover the lost income but would lose their productivity due to low morale. There would also be low labour supply as not many individuals would be willing to work leadin g to low output in the economy (Taylor, 2009). Indirect taxes can also be used to discourage consumption especially of demerit goods. A government can impose duty on alcohol and cigarettes leading to lower demand for the items hence low output and employment. Tax incentives such as Subsidies to producers on the other hand lead to decline in cost of production hence reduced prices and consequently increased demand. Increased demand leads to production of more output hence increased economic activity (Creel & Sawyer, 2009). A decline in corporation tax attracts domestic and foreign investors’ hence increased fixed capital spending on technology, labour skills, infrastructure (Mankiw, 2008). Tax allowance on research and development encourages innovation and more business start-up thus increased employment and consequently increased aggregate demand. Government Spending Fiscal policy entails increasing government spending but a contractionary fiscal policy involves reducing gove rnment spending to curb excess demand. A government spends on infrastructure, and provision of essential services such as education and health. This adds directly to the aggregate demand of the economy hence stimulating economic activity. The government can finance its spending by borrowing from abroad or domestic market as raising taxes can lead to further weakening of the economy due to reduced demand. Improved infrastructure leads to more investments due to opening up of new markets and entry

Crises and conflicts in the middle east Essay Example | Topics and Well Written Essays - 1750 words

Crises and conflicts in the middle east - Essay Example The survival of Saddam Hussein, who was seen as a challenge for the hegemony of the United States of America in the Persian Gulf, directly counterposed as a threat to American and regional security. To finish the unfinished task of 1991, the United States of America‘s invasion of Iraq began on March 20, 2003. America’s Consolidation of New World Order in Iraq The War on Iraq had nothing to do with America’s professed objectives of human rights protection and removal of a dangerous dictator from power. On the other hand, America’s strategic interests in an emerging new world order and the rise of unilateralism and unipolarity after the collapse of Soviet Union had contributed much to bringing the US into the gulf war. Two American wars against Iraq were very different in nature, both in objectives and outcomes. The objective of 1991 war was to overturn the notorious act of aggression and restore normalcy in the region, wherein the United Nations preserves it s hegemony. The first Gulf War, which was called as Operation Desert Storm, had the sanction of United Nations Organization and a grand global coalition forces fought it. It was seen as a legitimate war fought for Kuwait’s liberation. The Operation Desert Storm restored status quo in the region. In contrast, the second Iraq war was a preventive war. It was fought for preventing Saddam Hussein from acquiring nuclear weapons and other weapons of mass destruction. George W. Bush administration was of the view that if Saddam Hussein gets nuclear weapons, he could not be deterred from aggressive actions in the region. Even though old allies of the United States of America and United Nations Organisation opposed it, the United States of America attacked Iraq in 2003. The first said priority of second Iraq war was to oust Saddam Hussein and take away weapons of mass destruction from Iraq. It was a pre-emptive war not only to Iraq but also to demonstrate to other so-called rouge stat es, who were trying to seek weapons of mass destructions against the will of the United States of America, the consequences of mending with American strategic interests in the new world order. Neoconservatives in the United States of the America also provided intellectual support for the war and engaged in fierce ideological battles to change the American opinion in favour of war. They were professing to build a model democracy in Iraq as the presence of a democratic Iraq in the Middle East would have undermined the influence of the other dictatorships in the Arab world and ensured more security for Israel, the staunch American ally. Peter W. Galbraith has correctly summarized real motives behind the second Iraq war. Galbraith considers the Iraq War â€Å"was intended to transform Iraq from brutal dictatorship into the Arab world's first real democracy. President Bush fully expected a democratic Iraq would be both a role model for other Middle Eastern countries and a subversive for ce against the region's authoritarian rulers. Envisioning a replay of the 1989 Eastern European revolutions, where elections in Poland set in motion a process that swept away the Berlin Wall and the Soviet Union, the Iraq War's neoconservative architects imagined the quick collapse of Syria's Baathist regime, the growing strength of Prodemocracy forces in Iran, and ultimately the replacement of pro-American autocrats in Saudi Arabia and Egypt with pro-American democrats†