“The primary goal of fiscal policy is to help the economy avoid operating at the extremes, such as in a recession or out-of-control economic growth, in a way, stabilizing the business cycle and regulating economic output,” Steeno notes.

Fiscal policy objectives may also include maintaining economic and price stability, optimizing employment, fueling economic development and providing capital when and where it is needed across a nation’s economy.

How Fiscal Policy Is Implemented

To meet fiscal policy goals, governments deploy two primary tools to maximize economic outcomes—collecting taxes and then spending them. These are generally enacted by elected officials and their appointees in legislative and executive branches of governments.

Taxes. By collecting tax revenues on individuals and businesses, via tax vehicles like capital gains and property taxes, among others, the federal government can steer financial assets to areas of the economy where they’re needed most. Those tax amounts are substantial. In 2020, the U.S. government collected $3.42 trillion in taxes. That amounts to $108,000 collected in taxes every second.

Government spending. When a nation collects taxes, it has the financial means to establish fiscal policy. Federal tax dollars are spent on nationwide needs like infrastructure, defense, public works, government employment, subsidies and public health, research and welfare programs.

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