2.3 Recommendation: Promoting Tourism Tourism is a notable driver of economic development (Dwyer, Forsyth & Spurr 1993) as it creates new job and employment for people of the country and stimulating GDP growth. It produces income, employment, boosts international investment and exports through the multiplier effect. It increases the aggregate demand by increasing consumer and government spending on travel and tourism services. Travel and tourism sector have low barriers to entry and encompasses a range of enterprises that provide development opportunities to the local economy. Hence development of tourism creates positive economic growth. 2.5 Trades-offs, feasibility of the policy and any additional issues if implemented Foreign poaching may occur. Foreign firms and investors might shift their focus onto the business that tourism bring about and SMEs in Singapore may potentially suffer a decline in business revenue while facing competition from bigger foreign firms. 2.6 Recommendation: Consumer confidence Singapore consumer confidence index (CCI) for the first quarter in 2019 stands at 92 points (Nielsen 2019). As a result, the aggregate demand curve will shift to the left. Singapore government can make changes to the government policy to increase consumer confidence One recommendation would be to decrease taxes in order to encourage an increase in consumer spending which results in an incline in economic output. This is regardless of the tax type; decreasing income tax allows individuals to keep and spend more money, increasing consumption. A decrease in the goods and services tax will encourage consumption as well as individuals feel as if they are paying less for the same amount of goods and services. The shift in aggregate demand is a result of the tax change, which is influenced by multiplier and crowding out effects. Changes in government policies allows people to set their expectations on the economy output which can be used to gauge consumption levels. With income stability, people’s spending, and production will increase Page 6 of 11
Page 7 of 11 ECON1016, 2019S2, Policy Brief Project as manufacturers would produce more as they anticipate an increase in consumer purchases. GDP will rise and positive economic growth will further strengthen the consumer confidence. 2.8 Trades-offs, feasibility of the policy and any additional issues if implemented Though the crowding-out effect may have negative impact on the aggregate demand, tax change can help to stabilise the economy in the short run. This is important as consumer spending accounts for 60-70% of GDP (Cotsomitis & Kwan 2006). However, a potential issue that could arise from tax reduction is the possibility of increased borrowing from the government through different forms including selling of bonds to cover the shortfall from reduced taxes. Fiscal policy plays a part in the increase or decline of consumer confidence.
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