Definition
- Discretionary fiscal policy
- Discretionary fiscal policy is a deliberate government decision that explicitly changes the level of taxes or government spending.
- Not to be confused with: Automatic stabilisers
- Automatic stabilisers are tax and spending rules already in law that stimulate aggregate demand in a recession and hold it down in an inflationary boom.
Test yourself
What is the difference between discretionary fiscal policy and automatic stabilisers?
A stabiliser changes taxes or spending with no new decision; discretionary policy needs one.