Key points
- Expansionary policy boosts growth (stimulus).
- Contractionary policy cools economy (austerity).
- Complements or conflicts with monetary policy.
Example
Cutting VAT by 2 percentage points can boost near-term consumption, while expiring child tax credits can create a fiscal cliff for households.
In history
The 2020 CARES Act (~$2.2T) flipped US fiscal stance sharply expansionary, helping GDP rebound after the pandemic shock.
Related terms