Fiscal policy
Fiscal policy is the application of taxation and government spending to influence economic performance. The main aim of adopting fiscal policy instruments is to promote sustainable growth in the economy and reduce the poverty levels within the community. In the past, fiscal policy instruments were used solve the economic crisis such as the great recession and during the financial crisis. They are effective in jump-starting growth, supporting the financial systems, and mitigating the economic crisis on the vulnerable groups especially the low-income earners and the poor. The most commonly applied fiscal policy instruments are government spending and taxes. The government increases or reduces its budget allocation on public expenditure to ensure vital goods and services are provided to the citizens. For instance, expenditure on infrastructural projects not only increases access to more roads but also creates jobs to the public and also increases the amount money in circulation thereby spurring economic growth. On the other hand, reduction of income and value added taxes increase the amount of disposable income that individuals direct to consumption and investment expenditures. Increasing income taxes reduce disposable income while it increases the tax base for public spending.