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Tax Policy: Review Of Literature

2056 words - 8 pages

Keynesian supporters suggest that changes in the U.S. economy can, and should, be influenced through governmental intervention (Gaber, Gruevski, & Gaber, 2013). To influence economic conditions within the U.S., the government employs the use of monetary and/or fiscal policies. Monetary policies include changes in the money supply or interest rates. On the other hand, fiscal policies include changes in government taxation, spending, and borrowing. In either case, the type of policy implementation depends on the movement in the economy, i.e. whether it is expanding, contracting, or stagnating.
In the wake of the Great Recession of 2007-2009, the U.S. economy was struggling as a result of various economic weaknesses, including a housing crisis, rising unemployment, and restricted access to credit at the individual and corporate levels. As a result of the fallout from the Great Recession, governments at all levels within the U.S. were faced with restricted resources and growing debt (Cebula, 2012). To stimulate the economy, the U.S. government implemented expansionary fiscal measures.
This paper considers various pieces of literature relative to fiscal policies implemented to stimulate the economy of the U.S. following the recent Great Recession. Following a brief discussion on the economic conditions preceding, during, and after the Great Recession, a review of the literature associated with the fiscal policies instituted by the U.S. government as a result of the Great Recession will be studied. Finally, literature relative to the realized effects of the fiscal policies on the U.S. economy will be evaluated. The objective of this review is to evaluate the importance of the use of fiscal policies to influence long-term economic conditions following a recession.

Prior to the Great Recession, housing prices were skyrocketing, lending practices were lax, and a strong stock market. The Great Recession began in December of 2007 and officially ended in June of 2009 (Economic Policy Institute, n.d.). It began with the bursting of a significant housing bubble (Economic Policy Institute, n.d.). The housing crisis began a trickle-down effect which caused households to reduce spending, decreased business investments, and a substantial reduction in employment (Economic Policy Institute, n.d.). The decline in employment during the Great Recession (from 2008 to 2009) constituted more than 8 million jobs which was one of the greatest employment decreases since the Great Depression in the 1920s and 1930s (Economic Policy Institute, n.d.).
Following the Great Recession’s official end, the economy remained weakened. To this day, the economy has not fully recovered. According to the Economic Policy Institute (n.d.), nearly a year after the Great Recession was touted as being over, there were still more than 5% fewer jobs than before the recession. Overall, the Great Recession affected the U.S. economy in significant ways. It reduced family...

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