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13 May, 2015 - 10:20

Fiscal policy effectiveness may also be reduced by the presence of various lags or delays in the impact of fiscal policy. Recognition lag relates to the identification of the real problem. Administrative lag arises from the time it takes to enact the needed statutes. Operational lag results from how much time it takes for the effect of tax changes to be realized and be felt.

Kennedy became president in 1960, in the middle of a mild slow down of the economy. He immediately proposed a tax cut according to Keynesian fiscal policy. However, the tax cut was not enacted until 1964 and the effects of the tax cut were not felt until several years later. By then, the economy was starting to experience inflation and the opposite policy was needed.