fiscal policy
DESCRIPTION
This PPT include all information about Fiscal Policy.TRANSCRIPT
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FISCAL POLICY
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• The word fisc means ‘state treasury’ and fiscal policy refers to policy concerning the use of ‘state treasury’ or the govt. finances to achieve the macroeconomic goals.
• “any decision to change the level, composition or timing of govt. expenditure or to vary the burden ,the structure or frequency of the tax payment is fiscal policy.”
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objectives
i. GENERAL objectives - aimed at achieving macroeconomic goals
ii. SPECIFIC objectives - relating to any typical problems of an economy
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Fiscal Policy And Macroeconomic Goals
• Economic Growth: By creating conditions for increase in savings & investment.
• Employment: By encouraging the use of labour-absorbing technology
• Stabilization: fight with depressionary trends and booming (overheating) indications in the economy
• Economic Equality: By reducing the income and wealth gaps between the rich and poor.
• Price stability: employed to contain inflationary and deflationary tendencies in the economy.
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Instruments of Fiscal Policy
• Budgetary surplus and deficit• Government expenditure• Taxation- direct and indirect• Public debt• Deficit financing
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Budgetary surplus and deficit
• “A budget is a detailed plan of operations for some specific future period”
• Keeping budget balanced (R=E) or deficit (R<E) or surplus (R>E) as a matter of policy is itself a fiscal instrument.
• An accumulated deficit over several years (or centuries) is referred to as the government debt
• A deficit is a flow. And a debt is a stock. Debt is essentially an accumulated flow of deficits
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Government Expenditure
It includes :• Government spending on the purchase of
goods & services.• Payment of wages and salaries of government
servants• Public investment• Transfer payments
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Taxation
• Meaning : Non quid pro quo transfer of private income to public coffers by means of taxes.
• Classified into1. Direct taxes- Corporate tax, Div. Distribution Tax,
Personal Income Tax, Fringe Benefit taxes, Banking Cash Transaction Tax
2. Indirect taxes- Central Sales Tax, Customs, Service Tax, excise duty.
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BUDGET
• “A budget is a detailed plan of operations for some specific future period”
• It is an estimate prepared in advance of the period to which it applies.
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COMPONENTS OF BUDGET
• Revenue receipts• Capital receipts• Revenue expenditure• Capital expenditure
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Limitations of Fiscal Policy• Whenever legislative sanctions are required to bring about
changes in tax structure, there may be administrative delays in implementing fiscal policies.
• Effective implementations of fiscal policy involves accurately forecasting the future course of business cycles which is extremely difficult.
• Existence of time lags between the initiation of the fiscal measures and realization of its impact reduces the effectiveness.
• An increase in public investment may be followed by a decline in private investment.
• The fiscal policies may be adequate in dealing with run away inflations and deep depressions.