How Does Government Policy Effect Economic Behavior?


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Meg Hayes Profile
Meg Hayes answered
Government policy has a very strong effect on economic behavior; taxation structures for a country will affect big and small businesses. For example, if a small company is being taxed to death, they may go under, or be unable to compete with other, more established companies. A larger company may balk at tax rates and move their factories and operations to cheaper countries; in fact, this sort of thing happens every day.

Businesses Move Elsewhere When Taxes Are Too High

  • One example that is familiar to most people is the way many popular phone and cable companies run their customer services call centers out of countries with cheaper labor, such as India. Many people believe that this inexpensive outsourcing is the result of tax laws that make hiring labor within a home country unfeasible.
  • Government policy also affects other important factors, such as the minimum wage of a country. Whether or not citizens can afford to live on what they make will be an important factor in the quality of life in a country, and it will also affect the economy; since people who are just getting by (or are not getting by at all) don't spend a lot of money on luxuries or other goods and services that pump up the economy.
Governments will always attempt to make their policies benefit the economy; however, they must balance economic concerns with compassion for the neediest members of their society. Therefore, there will always be pros and cons that push and pull the economy in different directions.

To understand more about the economy and how it operates, it's important to study government policies and then examine economic patterns as they shift and change, in accordance with different policies. Textbooks on macroeconomics and government policy will help students to analyze and recognize patterns.

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