Editing Fiscal policy (section)

==Stances==
{{See also|Procyclical and countercyclical variables#Economic policy making}}

Depending on the state of the economy, fiscal policy may reach for different objectives: its focus can be to restrict economic growth by mediating inflation or, in turn, increase economic growth by decreasing [[tax]]es, encouraging spending on different projects that act as stimuli to economic growth and enabling borrowing and spending.
The three stances of fiscal policy are the following: 
* ''' Neutral fiscal policy''' is usually undertaken when an economy is in neither a [[recession]] nor an [[economic expansion|expansion]]. The amount of government [[deficit spending]] (the excess not financed by tax [[revenue]]) is roughly the same as it has been on average over time, so no changes to it are occurring that would have an effect on the level of [[economic activity]].
* '''Expansionary fiscal policy''' is used by the government when trying to balance the contraction phase in the [[business cycle]]. It involves government spending exceeding tax revenue by more than it has tended to, and is usually undertaken during recessions. Examples of expansionary fiscal policy measures include increased government spending on public works (e.g., building schools) and providing the residents of the economy with tax cuts to increase their purchasing power (in order to fix a decrease in the demand).
* '''Contractionary fiscal policy''', on the other hand, is a measure to increase tax rates and decrease government spending. It occurs when government deficit spending is lower than usual. This has the potential to slow economic growth if inflation, which was caused by a significant increase in aggregate demand and the supply of money, is excessive. By reducing the economy's amount of aggregate income, the available amount for consumers to spend is also reduced. So, contractionary fiscal policy measures are employed when unsustainable growth takes place, leading to inflation, high prices of investment, recession and unemployment above the "healthy" level of 3%–4%.

However, these definitions can be misleading because, even with no changes in spending or tax laws at all, [[Business cycle|cyclic fluctuations of the economy]] cause cyclic fluctuations of tax revenues and of some types of government spending, altering the deficit situation; these are not considered to be policy changes. Therefore, for purposes of the above definitions, "government spending" and "tax revenue" are normally replaced by "cyclically adjusted government spending" and "cyclically adjusted tax revenue". Thus, for example, a government budget that is balanced over the course of the business cycle is considered to represent a neutral and effective fiscal policy stance.