Question

When examining fiscal policy, should business be more interested in taxation policy or government spending?

Answer 1

When examining fiscal policy of the government , businesses need to keep track of both government spending as it leads to crowding out effect and also taxation policy of the government as it determines their after tax income. However, it can stated that businesses should be more interested in taxation policy of the government as it determines the after tax income or final profits of the owners of the business which is also the income of the entrepreneur and determines whether businesses will stay in the industry or not. Thus, both the components of fiscal policy are important for the government but taxes play a major role.