Give two disadvantages of using an expenditure-based fiscal policy over a taxation-based fiscal policy

Question

What will be an ideal response?

Answer 1

One major disadvantage of using an expenditure-based fiscal policy is the lag in implementation. In contrast, taxation-based fiscal policy can advance much more quickly. Secondly, the urgency of increasing expenditure during a recession makes it harder to identify and efficiently implement the projects that are socially beneficial. In addition, most of the projects with the highest social return have been funded already, raising the chance that a new project won't be socially desirable. Finally, politics and special interests sometimes gets in the way, increasing the chances that bad projects get funded. In case of taxation-based policies, the additional spending required to boost economic growth is done by households themselves, so that the money is spent on goods and services that households value.