The most important reason for the crowding-out effect of fiscal policy is that the increase of government expenditure leads to the increase of interest rate, but the increase of interest rate will affect private investment, reduce private investment and reduce the original multiplier effect. Therefore, the increase of national income caused by the increase of fiscal revenue and expenditure is lower than that without considering the balance of money market or the constant interest rate. These are the most important reasons for the crowding-out effect of fiscal policy.

What is a countercyclical fiscal policy?

Counter-cyclical fiscal policy is a kind of counter-cyclical policy, which means that government departments adopt fiscal policies opposite to the economic cycle to regulate the economy, which not only avoids overheating, but also resists the economic downturn. Counter-cyclical policy is like a kind of communication. If used properly, the economy can operate in a reasonable range and reduce economic risks. The specific control is that when the economy is overheated, in order to avoid excessive expansion of the bubble, government departments will adopt policies such as increasing taxes and reducing fiscal expenditure to resist economic expansion. When the economy declines, government departments will adopt policies such as reducing taxes and increasing expenditures to avoid excessive economic decline.

From what aspects does fiscal policy mainly regulate the economy?

1. tax: raise relevant tax rates to prevent hidden dangers when the economy is overheated, such as raising stamp duty when the stock market is overheated. Reduce taxes to improve the economy when the economy declines;

2. National debt: The issuance of national debt can reduce private sector investment or transaction funds, thus regulating consumption and investment, and at the same time, it can change the concept of money supply and demand and market interest rate;

3. Fiscal expenditure: the structure of fiscal expenditure plays a key role in the adjustment of social and economic structure and economic development;

4. Government investment: Government investment has a multiplier effect, and has a demonstration and guiding role in guiding the sound development of the economy.