Fiscal Policy

Fiscal Policy concerns the behavior of national governments, how they raise money in order to fund the vital aspect of public policy for which they are responsible. Edwin Seligman, who dedicated his scholarly career to the Science of Finance, firstly used the expression of “fiscal policy” for highlighting that the government should implement some redistribution of income through taxing and spending. Later Keynes and the Keynesian modified the meaning of fiscal policy so it lie on “the manipulation of taxes and public spending to influence aggregate demand”. The goals of the modern theory of fiscal policy extend beyond stabilization so the fiscal tools can help to redistribute and allocate resources. Nowadays the reality can be far from this theory because fiscal policy is undergoing a serious crisis due to economic globalization which is increasing part of the world's economic activity carried out across borders and is imposing further constraints over governments’ sovereignty to fulfill an allocative, distributive, regulative and stabilizing role in their national economic system. These constraints originate from the incongruence of the dynamic trans-jurisdictional mobility of production factors and the static institutions of governance based on geographic criteria.