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Explained | What is counter-cyclical fiscal policy that Economic Survey 2021 refers to

Hint: It is connected to public spending.

January 30, 2021 / 07:37 AM IST
Representative image (PC- MoneyControl.Com)

Representative image (PC- MoneyControl.Com)

One of the vital themes of the Economic Survey 2020-21 presented was a big push in public spending in the budget. The government should not worry about debt or be fiscally conservative at a time of global slowdown, the survey advocated. It did so by making a case for a so-called counter-cyclical fiscal policy.

Below is a quick primer on what counter-cyclical fiscal policy means.

First, let’s talk about the cyclicality of the fiscal policy

Cyclicality of the fiscal policy simply refers to a change in direction of government expenditure and taxes based on economic conditions. These pertain to decisions by policymakers based on the fluctuations in economic growth. There are two types of cyclical fiscal policies - counter-cyclical and pro-cyclical.