Fiscal And Monetary Policy In Algeria

 

Fiscal and monetary policy in Algeria

One of the most important role of governments in the world and especially in Algeria is manages the overall pace of economic activity, seeking to maintain high levels of employment and stable prices. Thus, It has two main tools for achieving these objectives: fiscal policy, through which it determines the appropriate level of taxes and spending; and monetary policy, through which it manages the supply of money.

The history of economic policy in Algeria since the independence in 1962 has involved a continuing effort by the government to find a mixture of fiscal and monetary policies that permit sustained growth and stable prices. Of course there have been failures along the way because it isn't an easy task .

Definition 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.

It is also The policy of a government in controlling its own expenditures and taxation, which together make up the budget in order to influence macroeconomic conditions.

We do agree that the role of fiscal policy, along with monetary policy, is to regulate the level of economic activity, the price level, and the balance of payments. Fiscal policy also determines the distribution of resources between the public sector and the private sector and influences the distribution of wealth.

Fiscal policy refers to the overall effect of the budget outcome on economic activity. The three possible stances of fiscal policy are neutral, expansionary, and concretionary:

• A neutral stance of fiscal policy implies a balanced budget where G = T (Government spending = 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 a net increase in government spending (G > T) through rises in government spending, a fall in taxation revenue, or a combination of the two. This will lead to a larger budget deficit or a smaller budget surplus than the government previously had, or a deficit if the government previously had a balanced budget. Expansionary fiscal policy is usually associated with a budget deficit.

• A concretionary fiscal policy (G < T) occurs when net government spending is reduced either through higher taxation revenue, reduced government spending, or a combination of the two. This would lead to a lower budget deficit or a larger surplus than the government previously had, or a surplus if the government previously had a balanced budget. Contractionary fiscal policy is usually associated with a surplus.

Objectives of fiscal policy:
The objectives of fiscal policy are as follows;
1. To achieve desirable price level:

2. To Achieve desirable consumption level:

3. To Achieve desirable employment level:

4. To achieve desirable income distribution:

5. Increase in capital formation:

6. Degree of inflation:


Instruments of Fiscal Policy:
1. Public expenditure
2. Taxes
3. Public debts

 

 

 

 

 Article Source: http://www.informationbible.com/article-fiscal-and-monetary-policy-in-algeria-281.html

 Article Tags: fiscal policy, monetary policy, central bank, algeria

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