Fiscal policy is the policy of a government in which taxes and government spending are used to influence the economy. By spending more or less money or by raising or lowering taxes, the government aims to steer economic growth, employment and price stability. 

Fiscal policy determines how much money circulates through the economy via the government.

When the economy weakens, a government may choose to lower taxes or invest additional funds in infrastructure, healthcare or education. This makes more money available to consumers and businesses, which can stimulate demand and economic activity.

In times of strong growth and rising inflation, the government may instead raise taxes or reduce spending to prevent overheating. Fiscal policy differs from monetary policy, which is carried out by central banks through interest rates and the money supply. The effect of fiscal measures depends on the level of public debt, the confidence of consumers and businesses and international economic conditions.

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