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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. |
Objectives of fiscal
policy:
The objectives of fiscal policy may be regarded as
follows;
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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
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| 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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