Overview of fiscal policy toolsThe recent global financial crisis had tremendous effects on Spain’s economy. This crisis resulted in massive unemployment and reduced economic activity. Since 2011, the Spanish government implemented different fiscal policies focused on structural reforms and fiscal consolidation (Ricci-Risquete & Ramajo, 2015). The objective of the government has been to ensure financial sustainability in order to ensure job creation, correcting inequalities and provision of social protection for the vulnerable communities in Spain.
Fiscal policy tools’ applications
The government applied the two fiscal policy tools taxes and government spending in order to promote economic growth. From 2011, the government reduced spending in some sectors of the economy but increased expenditure on unemployment benefits and paying loans. Reduction in government spending was occasioned by the contraction in the tax base that was occasioned by increased unemployment. New tax measures were enforced and there were tax increases for some cadres of citizens in Spain (Ricci-Risquete & Ramajo, 2015). The government froze pension payments, the pension age was increased by two years from 65 to 67 implying that workers were added two more years of service before they were eligible for pension payment. There were some public service positions that were left vacant until after improvement in economic conditions.
Government statistics on the budget balance and EU requirements for member countries
In 2009, the budget deficit was 11.1%. This reduced to 8.9% in 2011 and 6.3% in 2013. This reduction in budget deficit did not meet the target (3%) set by the European Union. met the target on budget balance requirements by the European Union. In 2015, Spain’s deficit was 5.1% (Worstall, 2016). The fact that Spain has not achieved the deficit requirements raises the question of the effectiveness of the austerity measures implemented by the government. The country has been given until 2018 in order to attain the 3% deficit mark (Worstall, 2016).
EU budget and sources of financing and outlets for the funds use
The EU’s budget is funded mainly by contribution from member countries. The top contributors include Germany, Italy and France. The other sources of financing include: tax on staff salaries, fines levied on companies operating in the EU and violating competition and environmental laws, custom duties on imports to the EU and sugar levies. The EU also receives contribution from non-EU countries to some programs implemented by the EU (European Union, 2017).
The EU budget is prepared by the EU Commission and approved by the Council of Parliament. The budget finances different activities including environmental conservation, promotion of human rights, sustainable development in poor communities, reducing socio-economic gaps through creation of employment opportunities and combating organized crime, illegal migration and terrorism (European Union, 2017).
Differences between U.S. fiscal policy and Spain’s
The first difference is that decision on budget deficit attained in Spain is reported to EU authorities who are located outside the nation. The authorities may choose to fine Spain or allow them more time to achieve the targets. On the other hand in the U.S. budget deficit decisions are decided by U.S. authorities and whether this is achieved or not does not concern any external authority.
The other difference is that Spain does not have an effective mechanism of transferring income to stricken areas. This is different from the United States where there is easy flow of cash to some troubled states. The troubled states also benefit from welfare income from other states that are performing better. The difference is that in the U.S. one state may have better economic fundamentals than another at one particular time. This is not the same case in Spain where when one major town or city suffers economically, then this effect may be realized in other towns and cities.
Conclusion – fiscal policy as economic stabilization mechanism
Fiscal policy tools like taxes and government spending are used as a means of stabilizing economies. After the 2008-2009 financial crisis, the government of Spain implemented austerity measures in order to promote economic growth and create jobs. The measures have not helped Spain achieve the target for budget deficits.
- European Union. (2017). Where does the money come from? European Union. Retrieved from http://ec.europa.eu/budget/explained/budg_system/financing/fin_en.cfm#other
- Ricci-Risquete, A., & Ramajo, J. (2015). The effects of fiscal policy on the Spanish economy: Keynesian or non-Keynesian behavior? Journal of Policy Modeling, 37(6), 1019-1048. doi: 10.1016/j.jpolmod.2015.08.006
- Worstall, T. (2016, July 12). Spain, Portugal and the inanity of the EU’s budget deficit rules and punishments. Forbes. Retrieved from https://www.forbes.com/sites/timworstall/2016/07/12/spain-portugal-and-the-inanity-of-the-eus-budget-deficit-rules-and-punishments/#3e3ea6805815