PUBLIC FISCAL ADMINISTRATION

I have learned from the learning materials that governments often influence the economy
through fiscal and monetary policy. A bit confusing but fiscal and monetary policies take very
different approaches to influence the economy. A central bank, such as the Federal Reserve in
the United States or the ‘Feds’, typically sets monetary policy. National governments, like the
U.S. Congress, on the other hand may decide fiscal policy. So Fiscal policy basically refers to
government taxing, spending and borrowing decisions that influence macroeconomic conditions.
The main function is to provide public goods and services for citizens. As explained in the vids,
the government can impact economic activity by changing or restructuring tax rates, e.g., the
Economic Stimulus Act of 2008 providing for several kinds of economic stimuli intended to boost
the United States economy in 2008 and to avert a recession. Also, Fiscal policy could be either
contractionary or expansionary wherein the contractionary part refers to the fact that the
government is ‘contracting’ the money available for spending, by increasing the tax rate, which
will generally result in lower aggregate demand. On the other hand, expansionary fiscal policy is
when the government lowers taxes in order to put money in the hands of the public to yield a
higher aggregate demand. According to the lecturer, it is most often used during a recession,
times of high unemployment or other low periods of the business cycle, e.g., in 2009, when a
recession hits, the federal government increases spending to stimulate the American economy.
The Keynesian theory was also discussed, that suggests the government should increase
demand to boost growth, and the theory supports the expansionary fiscal policy. But, unlike
previous recessions, there is no immediate role for aggregate demand management in this
Covid-19 crisis as long as public-health measures depress the economy’s potential output.
During the initial phase of the pandemic, the essential role of governments was to support
infection fighting. For the Philippines, as restrictions are slowly relaxed, the government's focus
is helping the economy recover faster. But what are we going to do about our fiscal deficit? Our
tax revenue is shrinking and expenditure increasing. The economic team proposed a stimulus
package with far larger effects that will increase our fiscal deficit - fiscal and monetary actions to
finance emergency initiatives and keep the economy afloat. I guess effective governance, a
proactive fiscal policy in particular will address these challenges.