Economic policy analysis studies government actions that aim to affect the economy through fiscal policies, including their origin, citizens’ reception, and effects on the economy. The origin of economic policy may be domestic or external, and policies may be unpopular with citizens before leading to long-term improvements.
To understand the concept of economic policy analysis, it is necessary to understand the meaning of economic policy. The term economic policy refers to actions or decisions emanating from the government of a specified country that aim to cause some form of effect on the economy. One of the most important tools used by governments to achieve these desired economic changes is the application of fiscal policies with the objective of having the effect that the government wants in the macro and, by extension, in the micro economy. Thus, economic policy analysis refers to the study of these various types of policies, including their origin, precipitating factors, citizens’ reception of policies, and the effect of these policies on the economy.
Considerations about the origin of economic policy during an analysis of economic policy are based on the fact that the origin of economic policy may not necessarily be domestic. Most of the time, governments carry out an assessment of the economy itself in order to design the specific type of economic policy to be applied. In other cases, the source of economic policy may be external and suggested by outside parties, or it is part of a package that has been delivered to that particular economy as a means of effecting some changes in the economy. For example, an economic policy analysis of some economic programs in developing countries may originate from external sources in the form of creditors or donors who use monetary factors as incentives to entice the government to implement these economic policies. An example of this can be seen in the conditions attached to grants or money that may be given to these countries by multilateral development banks such as the African Development Bank or the World Bank.
Another consideration in economic policy analysis is the effect of such economic policies on the country’s citizens. For example, economic policies may be unpopular and will not be well received by citizens because of the short to medium term difficulties they will face before they can expect long term improvements. An inclusion in economic policy analysis is also the effect that policies have on the economy. For example, the government’s decision to introduce different types of fiscal policies is usually taken with the expectation that they will cause a change in the current economic situation in that country.
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