Question

1. 1.4 In 2010, the government announced the ill-fated ‘cash for clunkers’ scheme that proposed to pay people $2000 if they traded in a pre-1995 car and purchased a fuel-efficient car. The scheme was scrapped before it took effect. If the scheme had gone ahead, would the subsequent government spending been an example of fiscal policy? Does it depend on what goals the government had in mind for the policy to achieve?

Answer 1

The 'cash for clunkers" scheme was a national scrappage policy with two aims- to increase auto sales and the second aim was to bring on the roads more efficient cars that were less polluting.

A fiscal policy is an economic policy of the government aimed at changing aggregate demand or supply in the economy, using various tools such as change in taxes, or change in government spending, which in turn changes income of the people and the country as a whole.

However, 'cash for clunkers' was not a policy aimed at changing income of the people or the country. It was a sector-cum-environment policy aimed at tackling two issues in the economy. Therefore, even if the scheme gone ahead it wouldn't have been an example of fiscal policy.

Yes, it does depend on the goals the government has in mind for a policy to be called a fiscal policy.