The Link between Fiscal policy and Economic Growth Literature review

The Link between Fiscal policy and Economic Growth - Literature review Example This called for strategic approaches towards influencing the economy positively. As a result, many approaches have been used to influence the nations’ economy in different ways, for instance, the use monetary policy, macroeconomic policy and fiscal policy, which are applicable in many countries. In some instances, some economic goals are met through a combination of several policies, depending on the nature of the goals to be met. Generally, fiscal policy is the process of influencing macroeconomic conditions through policies of government spending. The practice involves influencing a nation’s economy through the collection of revenue, borrowing and using government’s expenditure. In this case, the government engages in adjusting the levels of its spending in a bid to track and influence the economy of the nation. The policies of government spending often affect the interest and tax rates alongside the government’s spending (Barro and Redlick, 2011, 57). Just like other policies of influencing a nation’s economy, fiscal policy is applicable directing the economic goals of the country. The main goal is always the stability of the country’s economy through the control of spending and interest rates. The Concept of Fiscal Policy John M. Keynes, a British economist, came up with theories that are currently applicable in fiscal policy. His theories state that governments and nations, through the increase or decrease of public spending and the level of taxes, can influence the levels of macroeconomic productivity (Barro and Jin, 2011, 1568). The theory suggests further that such influences can further maintain the value of the currency at levels that are healthy, increase employment and curb inflation. The point of focus in the modern economics is the growth theory. This theory addresses the implications of economic growth regarding to wealth (Brzezinski and Dzielinski, 2009, 244) besides addressing the factors triggering economic growth. The system of economics can be stimulated through learning-by-doing mechanisms, which are essential for self-sustainable economic growth. These mechanisms can be induced into the economy by the government acts. Similarly, endogenous growth theory relates to fiscal policy, give n that the outcome of the process involves the issue of losers and winners. With regard to neoclassical growth models formulated by Swan and Solow (Solow, 1956, 67), the exogenous rate of progress in technology is the backbone of growth income per capita, in its steady state. Every policy is characterised by the need of growth, even though the economy’s steady level of operation will be affected by the policy. In this case, the rate of economic growth will only be influenced by the economic policy when the economy is being transited to a steady state. Endogenous growth theory’s distinguishing characteristic that is crucial in fiscal policy is the visualisation of the nature of knowledge (Tcherneva, 2010, 27). This standard framework of making fiscal policy has been deduced from this model, with regard to taxation and government spending. Thus, this explains why many researches focus on the roles of governments in influencing the economy through dividing and stabilising the cake as opposed to enlarging the economy. Primarily, the study of the link between fiscal policy and economic growth has had the focus on the relationship between taxation and gove

How important is an understanding of the production and distribution Essay

How important is an understanding of the production and distribution of wealth in the global economy to theorising international - Essay Example Global economies among many nations are not distinct from one another; therefore, it is necessary to re-arrange the economic theory of these nations. This report will give an in-depth insight on why it is important to understand the production and distribution of wealth in regard to international relations. Several international political economy theorists categorically reject the idea of a state-centric international system and consider the state to be only one actor among many. According to Steve Smith, it is evident that the social, economic and political structures affect systems of production, trade and distribution. He defines international relations as the international economic system that is constituted of economic, social and political â€Å"arrangements† of production, trade and distribution. It is not the result of market dynamics or chance, but rather of human decisions, rules, customs and authorities. Smith tries to pinpoint the central authorities whose decision s determine the course of events and power relations at the international level (Smith, Dunne, & Kurki, 2010). There are few elements that influence power relations at the international level, which later affects the decisions of production and distribution of wealth. ... This is a parent material to which security structures fall into. The security structures are factors, which have historically been dominant, particularly during the bipolar period. The second is production structures: it constitutes the essential power of the IPE. Production structures respond to the question â€Å"Who produces what?" Through this power alliances are formed; businesses are developed and become autonomous from states and eventually become transnational. The growing influence of transnational society disrupts the effectiveness of national political economics. Thus, the state's authority dwindles to the point where it becomes powerless and loses influence over its own territory as well as its territory-based economy (Baylis, Smith, & Owens, 2008). It is important to understand the production and distribution of wealth since it involves representations invoked by the actors of world politics. A nation will find it simple to lay out procedures used in this process. Afte r acquiring this information, it will be easy to investigate the practices that constitute entities called ‘actors’ capable of representation. This includes the cultural, economic, social, and political practices that produce particular actors e.g. states non-government organizations etc. it also includes the role of theorist and theories in representing some actors as more significant than others. This reorientation, which evolves from structuralism status as an approach to criticism rather than critical theory per se, is no less practical in its implications.  The main question is,  for both theorist and practitioners of international relations, why does analytic approaches privilege certain understandings of global politics and marginalizes others? The different modes of