Tightening fiscal policy is a kind of policy behavior that the state suppresses or compresses the total social demand through financial distribution activities. It is often taken under the trend that the total social demand greatly exceeds the total social supply. Its typical form is to reduce the scale of government expenditure through fiscal surplus. Because fiscal revenue constitutes a part of the total social demand, fiscal surplus means freezing a part of the total social demand, thus achieving the purpose of compressing the total social demand. To achieve fiscal surplus, on the one hand, we should increase taxes, on the other hand, we should try our best to reduce expenditures. If the tax increase is accompanied by the corresponding increase in expenditure, there can be no fiscal surplus, and the effect of increasing taxes to reduce the total social demand will be offset by the effect of increasing expenditure to expand the total social demand.
Close alternation and collocation of fiscal policies
1. The alternation of policy flexibility refers to the implementation of expansionary policies in one period and austerity policies in another period, and the two are used alternately. After World War II, the successor of British economist J.M. Keynes developed Keynes's short-term static analysis into long-term dynamic analysis and put forward compensatory fiscal policy. They believe that the primary problem of fiscal policy is not to seek balance of payments, but how to make up for the difference through fiscal revenue and expenditure arrangements when there is a difference between total social demand and total supply, so as to restore the economic operation to a balanced state.
They also believe that the capitalist economy is not always in a state of crisis, but sometimes it is prosperous and sometimes it is depressed. Fiscal policy can't always be based on expansion, and we should use expansionary policy and contractive policy alternately according to the cyclical fluctuation of the economy. During the depression, the government should reduce taxes, increase expenditures and implement a deficit policy; In a prosperous period, the government should increase taxes, reduce expenditures and implement a surplus policy, and the surplus should be frozen for use in a depressed period.
3. Keynesianism also emphasizes the role of fiscal automatic stabilizer. If the progressive income tax is implemented, when the economy is depressed, the total income will drop, and the tax revenue will also drop automatically, which will become an automatic adjustment means to increase social demand and alleviate the economic depression; When the economy expands, the total income rises, and the tax revenue also rises automatically, which has become an automatic adjustment means to control social demand and ease economic expansion. The government's transfer expenditure has the same effect.