Readers Question: What effect does expansionary fiscal policy have on the fishing sector?
If successful, expansionary fiscal policy will increase Aggregate demand and increase the rate of economic growth. In a recession, expansionary fiscal policy could play a significant role in increasing level of living standards and levels of consumption.
Expansionary fiscal policy involves changes to tax and spending to increase overall aggregate demand in the economy. E.g. lower income tax rates will increase disposable incomes of consumers. With an increase in disposable income they can afford to buy more fish. Therefore, in a recession, the fishing sector may benefit from expansionary fiscal policy.
However, I’m not sure of the income elasticity of demand for fish. In a recent post, we looked at how the demand for Champagne had been drastically reduced by the recession. Expansionary fiscal policy would certainly be good for Champagne growers.
However, a fish and chip supper is unlikely to be a luxury good. If incomes fall, it is possible some consumers will buy fish and chips rather than go to a more expensive restaurant. In a recession, I doubt the demand for fish falls too significantly.
Also, there is the wider question of whether fiscal policy can actually increase the rate of economic growth.