Fiscal policy is how the government manages its budget. It collects revenue via taxation that it then spends on various programs. Elected officials guide fiscal policy, redirecting funds from one sector of the population to another. The purpose of fiscal policy is to create healthy economic growth and increase the public good for the long-term benefit of all. As you can imagine, legislators and their constituents have different ideas of the best way to do that. As a result, fiscal policy is usually hotly debated, whether at the federal, state, county or municipal level.
Objectives of Fiscal Policy –
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 standard of the people. It is necessary for political stability and for maximization of production. 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
The first tool is taxation, whether of income, capital gains from investments, property, sales or just about anything else. Taxes provide the major revenue source that funds government. The downside of taxes is that whatever or whoever is taxed has less income to spend themselves. That makes taxes very unpopular. Find out exactly how the U.S. Federal budget is funded in Federal Income and Taxes.
The second tool is spending. The government provides subsidies, transfer payments, contracts to perform all kinds of public works, and of course salaries to government employees -- to name just a few. The reason government spending is a tool is that whatever or whoever receives the funds has more money to spend, thus driving demand and economic growth.
Objectives of Fiscal Policy –
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 standard of the people. It is necessary for political stability and for maximization of production. 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
The first tool is taxation, whether of income, capital gains from investments, property, sales or just about anything else. Taxes provide the major revenue source that funds government. The downside of taxes is that whatever or whoever is taxed has less income to spend themselves. That makes taxes very unpopular. Find out exactly how the U.S. Federal budget is funded in Federal Income and Taxes.
The second tool is spending. The government provides subsidies, transfer payments, contracts to perform all kinds of public works, and of course salaries to government employees -- to name just a few. The reason government spending is a tool is that whatever or whoever receives the funds has more money to spend, thus driving demand and economic growth.
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