Measures employed by governments to stabilize the economy, specifically by adjusting the levels and allocations of taxes and government expenditures.
When the economy is sluggish, the government may cut taxes, leaving taxpayers with extra cash to spend and thereby increasing levels of consumption . An increase in public-works spending may likewise pump cash into the economy, having an expansionary effect. Conversely, a decrease in government spending or an increase in taxes tends to cause the economy to contract. Fiscal policy is often used in tandem with monetary policy . Until the 1930s, fiscal policy aimed at maintaining a balanced budget; since then it has been used "countercyclically," as recommended by economic stabilizers . See also {{link=business cycle">business cycle .