What’s an example of fiscal policy?
One of the most basic examples of fiscal policy in action is a tax cut. Governments often use tax cuts to stimulate spending or boost the economy. In the aftermath of the financial crisis, for example, the government issued a temporary payroll tax cut designed to help stimulate the economy and encourage workers to spend more.
More recently, Congress passed the Tax Cuts and Jobs Act, which reduced the corporate tax rate. The measure was designed to support businesses and make the U.S. more competitive with corporate tax rates in other countries.
Fiscal policy can also influence the stock market; anticipation for the Tax Cuts and Jobs Act and its passage gave the stock market a boost, along with hopes for a trade deal with China.
Good fiscal policy can often help jump-start a new bull market, as programs such as the Troubled Asset Relief Program did during the Great Recession.
As investors know, a wide range of factors can influence the stock market, but it’s important not to overlook the impact of fiscal policy. It’s a good idea to pay attention to headlines coming out of Washington, especially those regarding government spending, taxes, and other decisions that can affect the stock market.