There are mainly three types of lag faced by the fiscal
policymakers. They are:
- Recognition lag: It is the lag between the occurrence of an
undesirable event and an actual recognition of that event. For
example, a recession occurs but its effect will take some time to
creep in and be visible in the data of the government. That is
recognition lag.
- Implementation lag: After the recognition of the even, The
government will take some time to formulate a policy and pass it as
a law through the Congress. This time taken in the formalities and
agreeing to what the right course of action should be is called an
implementation lag.
- Impact lag or the effectiveness lag: The action taken by the
government will not act quickly but it will take some time to show
the right effect and act as a remedy for that event. This is called
an impact lag.