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Fiscal Policies Links

Fiscal policy involves a government's spending and tax collection decisions to influence the economy. The main goals of fiscal policy are to achieve desirable levels of employment, production, consumption, prices, and income distribution. The key instruments of fiscal policy are government expenditure, taxation, and public debt. Fiscal stances can be expansionary, contractionary, or neutral based on whether government spending exceeds, is less than, or balances tax revenue. Fiscal policy aims to stabilize prices and the economy during inflationary or deflationary periods through adjustments to taxes and public expenditure.

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100 views3 pages

Fiscal Policies Links

Fiscal policy involves a government's spending and tax collection decisions to influence the economy. The main goals of fiscal policy are to achieve desirable levels of employment, production, consumption, prices, and income distribution. The key instruments of fiscal policy are government expenditure, taxation, and public debt. Fiscal stances can be expansionary, contractionary, or neutral based on whether government spending exceeds, is less than, or balances tax revenue. Fiscal policy aims to stabilize prices and the economy during inflationary or deflationary periods through adjustments to taxes and public expenditure.

Uploaded by

Amol Morye
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Fiscal policy of US:

http://en.wikipedia.org/wiki/United_States_fiscal_policy

Fiscal policy:
http://en.wikipedia.org/wiki/Fiscal_policy

Fiscal Policy - a key responsibility of the federal and provincial governments, which involves
preparing the budget and financial strategy for the country or province. Among the tools of fiscal
policy are taxation and government payments.

Fiscal policy in underdeveloped countries:


http://www.newasiabooks.org/publication/fiscal-policy-underdeveloped-countries-special-
reference-india

Fiscal policy in developing country:


http://www.scribd.com/doc/15921681/Fiscal-Policy

Fiscal policy’s objective:


http://www.informationbible.com/article-fiscal-policy-17.html?route=FiscalPolicy.php

Defination of Fiscal Policy:


Fiscal policy is an additional method to determine public revenue and public expenditure. In the
recent years importance of fiscal policy has increased due to economic fluctuations. Fiscal policy is
an important instrument in the modern time. According to Arther Simithies fiscal policy is a policy
under which government uses its expenditure and revenue programme to produce desirable effects
and avoid undesirable effects on the national income, production and employment.

In economics, fiscal policy is the use of government expenditure and revenue collection to
influence the economy.[1]

Fiscal policy can be contrasted with the other main type of macroeconomic policy, monetary
policy, which attempts to stabilize the economy by controlling interest rates and the money
supply. The two main instruments of fiscal policy are government expenditure and taxation.
Changes in the level and composition of taxation and government spending can impact on the
following variables in the economy:

 Aggregate demand and the level of economic activity;


 The pattern of resource allocation;
 The distribution of income.
Stances of fiscal policy
The three possible stances of fiscal policy are neutral, expansionary and contractionary. The
simplest definitions of these stances are as follows:

 A neutral stance of fiscal policy implies a balanced economy. this results in a large tax
revenue. Government spending is fully funded by tax revenue and overall the budget
outcome has a neutral effect on the level of economic activity.

 An expansionary stance of fiscal policy involves government spending exceeding tax


revenue.

 A contractionary fiscal policy occurs when government spending is lower than tax
revenue.

However, these definitions can be misleading because, even with no changes in spending or
tax laws at all, cyclical fluctuations of the economy cause cyclical fluctuations of tax
revenues and of some types of government spending, altering the deficit situation; these are
not considered to be policy changes. Therefore, for purposes of the above definitions,
"government spending" and "tax revenue" are normally replaced by "cyclically adjusted
government spending" and "cyclically adjusted tax revenue". Thus, for example, a
government budget that is balanced over the course of the business cycle is considered to
represent a neutral fiscal policy stance.

Objectives of fiscal policy:


The objectives of fiscal policy may be regarded as follows;

1. To achieve desirable price level:


The stability of general prices is necessary for economic stability. The maintenance of a desirable
price level has good effects on production, employment and national income. Fiscal policy should be
used to remove; fluctuations in price level so that ideal level is maintained.

2. To Achieve desirable consumption level:


A desirable consumption level is important for political, social and economic consideration.
Consumption can be affected by expenditure and tax policies of the government. Fiscal policy should
be used to increase welfare of the economy through consumption level.

3. To Achieve desirable employment level:


The efficient employment level is most important in determining the living standardof the people. It
is necessary for political stability and for maximization ofproduction. Fiscal policy should achieve this
level.
4. To achieve desirable income distribution:
The distribution of income determines the type of economic activities the amount of savings. In this
way, it is related to prices, consumption and employment. Income distribution should be equal to
the most possible degree. Fiscal policy can achieve equality in distribution of income.

5. Increase in capital formation:


In under-developed countries deficiency of capital is the main reason for under-development. Large
amounts are required for industry and economic development. Fiscal policy can divert resources and
increase capital.

6. Degree of inflation:
In under-developed countries, a degree of inflation is required for economic development. After a
limit, inflationary be used to get rid of this situation.

Instruments of Fiscal Policy:


1. Public expenditure
2. Taxes
3. Public debts

The above mentioned instruments are used by the public authorities to achieve desirable level of
production, consumption and National Income. During inflationary trend more and more taxes are
levied on the community. In this way, purchasing power of the people can be decreased and
desirable price level is achieved. During inflation public expenditure is decreased so that all in
production may decrease high prices and increase the value of money. During deflationary period
taxes are reduced and public expenditure is increased. In this way incentives to invest are increased
and national income begins to rise. For economic development public debts are necessary. In under
developed countries, due to insufficient resources economic development is not possible. Public
loans are drawn internally and externally.

The above mentioned methods are called budgetary policy of the government. This policy can
increase national income, production level and maintain full employment level.

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