Cons of contractionary fiscal policy:
1. Slowing down economic growth: Contractionary fiscal policy can lead to a decrease in consumer spending, business investment, and overall economic activity, which may slow down economic growth.
2. Unemployment: As businesses cut back on production and investment in response to contractionary fiscal policy measures, there may be a rise in unemployment as companies lay off workers or reduce hiring.
3. Reduced government spending: Contractionary fiscal policy often involves cutting government spending on programs and services, which can have negative impacts on social welfare and public infrastructure.
4. Constraints on public services: Reductions in government spending as part of contractionary fiscal policy measures may lead to cuts in public services like healthcare, education, and social welfare programs, which can negatively affect vulnerable populations.
5. Increased income inequality: Contractionary fiscal policy measures can exacerbate income inequality by disproportionately affecting low-income individuals who rely on government support and public services.
6. Negative impact on small businesses: Small businesses may struggle to survive during periods of contractionary fiscal policy due to reduced consumer demand and access to credit, leading to closures and job losses.
7. Slower recovery from economic downturns: While contractionary fiscal policy aims to curb inflation and ensure economic stability, it may also prolong economic downturns by reducing demand and investment in the economy.