Final milestone for econ 202 5 slides on decade 1980-89
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FiscalPolicies.pptxGovernment Fiscal Policies For the Year 1980-1990
Ryan Green
ECO 202
Professor Lauterborn
ECO 202
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Introduction
Fiscal Policies are defined as measures which are taken by the government when it comes to making adjustment on its spending levels.
It also entails making adjustments on the tax rates in order to control an economy.
It is considered as sister strategy to monetary policy which deals which control of money within an economy by the central bank.
These two strategies are used in order to attain certain economic goals.
ECO 202
In this power point, we are going to have a look at some of the Fiscal Policies which were implemented between 1980 – 1990 in order to control the economy which was experiencing deep economic recession.
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Ten-Year Period of U.S. Economic History
It was a tie when Ronald Regan was elected for the Presidency twice
Depression on the economy started from July 1981 to November 1982
To address the matter, Regan started a program termed as supply side economics
He raised the military defense budget.
Regan also introduce tax cuts on social programs
He made a reduction when it came to the issue of social programs
In 1986, Federal Deficit went up to $221 Billions
Labor market grew cumulatively by 3.8%
Unemployment dropped by 5.3% in 1989
ECO 202
In 1980, it is recorded that Ronald Regan run for the presidency as a republic and won against Jimmy Carter who was a Democrat and therefore he became the 40th president of United States.
In 1984, he ran for a second term and won against his vice president Walter Mondale which means that he served as a president from 1981 to 1989.
During this times, Regan advocated to low tax rates so that people could save more and also make investment.
Most individuals felt that they we going to help the wealthy class but they played a pivotal role when it came to creation of new jobs.
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Fiscal Policy Actions
There were four major policy actions which were enacted during Regan’s Presidency which were,
Labor and capital marginal tax rate reduction
Reduction of government spending
Reduction of economic regulation
Reduction of Inflation
ECO 202
When Regan came to power as the 40th president, he is said to have inherited an economy which was in a stagflation state. A stagflation is a term which is used to describe a stagnant economy with a slow grow rate as well as high inflation rate.
In order to address this issue, Reagan reduced the marginal tax rate from 70% to 28%. Besides these cuts, he also reduced the corporate income from 48% to 34%.
In order to make a reduction of government spending, Reagan cut domestic program by 39 billion and raised the defense spending by 35%. However, besides these cuts, he is said to have expanded the Medicaid program and increase the payroll tax.
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Fiscal Policy Impact
Marginal tax rate reduced from 70% to 28%.
Corporate tax on the other hand decreased from 48% to 34%.
There was a general increase in the private debt from 22.3% to 38.1%
The level of unemployment feel by 5.3% by 1989
Since then, the economy is said to have experience the longest peacetime expansion ever.
ECO 202
With this form of tax cuts, consumers were able to save more of their income and they would in turn create more business. A cut of the corporate tax on the other hand helped business to create more jobs hence addressing the issue of unemployment in the country.
Inflation rates were said to decrease from10.4% from 1980 to 4.2% in 1988
New businesses cropped up as a result of tax cuts but there was a record of bank failures due to high interest rates.
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The Laffer Curve
ECO 202
The Laffer Curve shows is used to demonstrate the long term effects when there are tax cuts. For instance, it is observed that when tax cuts are put in place, they subsequently raise the amount of money which is held by consumers who in return turn around Reagan’s tax cut and worked hard since the tax rates were already high.
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References
1980-82 Early 1980s Recession. (11, March 7). Retrieved from http://bancroft.berkeley.edu/ROHO/projects/debt/1980srecession.html
Amadeo, K. (2011, November 10). How President Reagan Ended the 1980s Recession. Retrieved from https://www.thebalance.com/president-ronald-reagan-s-economic-policies-3305568
Chakrabarti, G., & Sen, C. (2012). Anatomy of Global Stock Market Crashes: An Empirical Analysis. Springer Science & Business Media.
Sornette, D. (2017). Fundamentals of Financial Markets. Why Stock Markets Crash. doi:10.23943/princeton/9780691175959.003.0002
ECO 202
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