What is meant by "fiscal policy" in government contexts?

Fiscal policy refers to the government's approach to managing its budget through taxation and spending decisions. This involves determining how much money the government will collect from taxes and how that revenue will be allocated to various programs and services. The aim of fiscal policy is to influence the economy, stabilize it during fluctuations, promote economic growth, and ensure that public needs are met effectively.

For instance, during an economic downturn, a government might increase spending or cut taxes to stimulate demand and encourage economic activity. Conversely, it might reduce spending or increase taxes when the economy is overheating to curb inflation. Thus, fiscal policy plays a key role in shaping economic conditions and addressing public policy priorities.