Time Lags in Discretionary Fiscal Policy

When carnal knowledge or the president proposes monetary policies to correct unhealthy economic conditions, the metre it takes from the recognition of the problem, to the proposal of a solution, to the implementation, up to the time that the cause would yield slightly(prenominal) result normally takes a substantial amount of time. These time lags can be grouped into three different phases, the recognition time lag, the implementation time lag, and the solvent time lag. Time lags in arbitrary fiscal Policy, besides consuming some considerable amount of time, ar in any case very(prenominal) unpredictable.Studies keep up shown that arbitrary actions have shown little consistent response oer time (Taylor, 2003). With these three time lags adding up together, we can say that when the government generates atomic number 53 proposal to ease fall out economic health, one must foresee that inside the period of lag, there be no roadblocks or events that could transmute th e eventual vector sum of such a solution. Given the initial information that time lags are very unpredictable, it patch ups it more difficult to know what telescope of time needs to be foreseen.So indoors the period of the time lag, the conditions may alter in such a focus that when the discretionary policy is already in place it is no longer applicable, or it could make the situation pound where the deepen of conditions within the time lag would resolve in such a elbow room that it makes things worst. Let us focus startle on a condition where discretionary financial policies would end up empty or stickuped as the ambit of events within the time lag would make it inappropriate.One compositors case is prexy George Bush response to the September 11 attack where he immediately requested $40 jillion in emergency supplemental appropriations. In the late October of that same year, he added spare stimulus that includes, reduced taxes for low- and moderate-income househo lds, accelerating the tax cuts passed in 2001, allowing partial expensing on business neat equipment, eliminating the corporate alternative minimum tax, and extending unemployment benefits (Cooper, 2002). pentad months later President Bush added expensing provisions and unemployment benefits.The result was that the people believed that the added policy was scant(p) and late. This is because there was no way for the President to directly quantify the needed policy to ease out the economic judge after the September 11 attack. The delay took so long that the needed military forces came late. The events that occurred due to sentiments and fear where overlooked eyepatch the effects of the discretionary policy were non yet in effect. According to Auerbach (2002), the come to of policy on current legal action depends on expectations about the future.The worst scenario would occur when discretionary fiscal would real work on against what it was intended for. This is because disc retionary fiscal policy is an inexact science with coition having different agendas trying to work out with the President using present selective information that are already in effect and taking time to generate a corrective action for the present conditions. For example temporary investment incentives may work in the opposite direction strengthen the immediate response but also, potentially, enfeebling preceding investment (Auerbach, 2002).This is because when the data are collected and fiscal policies are regulate in place, the progress of investment within this period could well be depending to begin with on prior investment that are expected to boom during the period where the discretionary fiscal is still in the litigate of being implemented. Upon implementation of the discretionary policy, these prior investments could be affected by enormous competition of new investment resulting in a scenario where the discretionary fiscal volition worsen the economic condition.In the end, this document does not discourage the use of discretionary fiscal policy but puts caution that discretionary fiscal policies should be well ideal off, assessing the possible future risk in advance it is being implemented. Effective discretionary fiscal policy is just like control condition of any art, that a group of body, the congress and the president, must become a guru in order for discretionary policies to be effective.ReferencesTaylor,J. (2003). Reassessing arbitrary Fiscal Policy. Stanford University, Retrieved September 15, 2007 from http//www.stanford.edu/johntayl/Papers/Reassessing+Revised.pdfCooper, K. (2002). fiscal Policy. Economics Principles, and Policies, 16/e.. Retrieved March 23, 2007 from https//www.esa.doc.gov/Speeches/NABEFINAL.docAuerbach, A. (2002). Is there a Role for Discretionary Fiscal Policy?. The Federal Reserve buzzword of Kansas City. Retrieved September 15, 2007 from http//www.kansascityfed.org/publicat/Sympos/2002/pdf/S02auerbach.pdf