Fiscal policy and debt management in canada
Historically, the great depression heralded the birth of the various forms of economic schools of thought in use today. It sparked for the first time in the annals of economic reasoning the justification for government involvement in economic stabilization efforts (McConnell & Brue 1996). A common thread runs through fiscal policy and debt management. In most cases, there is a sensitive interdependent relationship between the phenomenon leaning credence to the importance economic policy makers have attached to these twin policies.
In an excellent paper on the subject (Tobin 1963), analyzing from a holistic point, admonished that in carrying out effective debt management it is incumbent on the central government to have the ability to measure possible implications of an intended debt strategy vis-a-vis cost and risk terms. In the case of Canada, the task of carrying out fiscal policy formulation and implementation is a shared responsibility between by both the Federal Government and the provincial authorities. This somewhat amalgamation of responsibilities is mainly geared towards the avoidance of conflict of interest between the central bank and the ministry of finance.
To enhance my chances of discussing this broad subject concisely, I have adopted the use of a flow chart to divide the main issues into their constituent parts.
Relationship
Fiscal policy in a general sense is carried out via government taxation policies, measured by its spending choices and deficit implications. Government’s deliberate manipulation of taxes to finance its spending ultimately has a direct bearing on the tax paying public, which has far-reaching consequences literally touching on every aspect of the economy. The consequence of any fiscal indiscipline or imprudent government spending is not felt only by the present generation but also on generations yet unborn, proven its seriousness.
Activities
At the heart of every fiscal policy is the desire to go beyond making tax smoothing its main agenda, but also to achieve debt financing at the lowest possible cost for a legitimate fiscal period. The options usually available are: discretionary, expansionary and contractionary fiscal policies (McConnell and Brue 1996).
Barro (1979), relies on the popular Ricardian theory of debt management which desires stabilization and minimization of costs and risks to say that in a hypothetical scenario, government debt has no impact on economic activity in the short run.
Components
Under the tenets establishing the concept of modern statehood, government has the main responsibility of ensuring the efficient functioning of the economy. With the political system in Canada, both the federal and provincial government carries out this responsibility.
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