Question

To reduce the national debt, there must be the consensus about raising taxes (revenue), reducing spending, or both simultaneously. If taxes increase, your net pay will decline, leaving you with less disposable income. Are you more of a fiscal conservative (the federal government should spend less) or a fiscal liberal (the federal government should spend more)? Identify the federal budget items that you would spend more or less on in the budget. Explain why.

Answer 1

I am more of a fiscal liberal. This is in line with the Keyneisian school fo through which states that the government has an important role to play in managing the economy. If there is a properly planned fiscal stimulus, the income level in the country can increase by so much that the tax revenue of the government sees a big jump and the stimilus does not add to the budget deficit or debt.

The key is to design the stimulus properly. Research has shown that tax cuts usually have a lower effect in stimulating the economy. Instead, the multiplier effects of government expenditure are more growth-boosting. I would spend more in the long term infrastructure as it develops the capacity for production and can boost demand. But most importantly I will spend more in developing the human capital of the country by spending more in education and health. These are the most importnat components in increasing the long term growth in the country.