The word fiscal is derived from the word Fisc which means treasury therefore fiscal policy deals with the matters of treasury or public finance. In fact, it was Keynes who popularized this great instrument of macroeconomic policy during the s' Depression. Prior to Keynes' appearance in economic. The objective of fiscal policy is to maintain the condition of full employment, economic stability and to stabilize the rate of growth. For an under-developed economy, the main purpose of fiscal policy is to accelerate the rate of capital formation and investment.
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Objectives of Fiscal Policy | Bizfluent
But generally the fiscal policy should ensure that the resources are allocated for generation of goods and services which are socially desirable.
Therefore, India's fiscal policy is designed in such a manner so as to encourage production of desirable goods and discourage those goods which are socially undesirable. Reduction in inequalities of Income and Wealth Fiscal policy aims at achieving equity or social justice by reducing income inequalities among different sections of the society.
The direct taxes such as income tax are charged more on the rich people as compared to lower income groups. Indirect taxes are also more in the case of semi-luxury and luxury items, which are mostly consumed by the upper middle class and the upper class.
The government invests a significant proportion of its tax revenue in the implementation objectives of fiscal policy Poverty Alleviation Programmes to improve the conditions of poor people in society. Price Stability and Control of Inflation One of the main objective of fiscal policy is to control inflation and stabilize price.
Therefore, the government always aims to control the inflation by Reducing fiscal deficits, introducing tax savings schemes, Productive use of financial resources, etc. Employment Generation The government is making every possible effort to increase employment in the country through effective fiscal measure.
Investment in infrastructure has resulted in direct and indirect employment. The market price of a commodity can be changed objectives of fiscal policy increasing or decreasing the sales tax or excise duty on the commodity.
Desirable Level of Employment Both developed and developing countries try to achieve full level of objectives of fiscal policy because it reflects a dynamic growth in the economy.
This desirable level of employment can be achieved with the help of fiscal policy.
Objective of Fiscal Policy and Its Advantages
For example developed countries can attain the full level of employment by increasing their expenditures under the assumption that the capital expenditure in the private sector remains constant.
This will increase the aggregate demand due to which the level of employment will be increased. The government thus uses the powerful tool of fiscal policy to achieve its goal of development, maintaining healthy objectives of fiscal policy opportunities, economic stability and objectives of fiscal policy permanency in growth.
The objective of fiscal policy is quite different for developed countries as opposed to developing countries.
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For the developing countries the main purpose of the fiscal policy is to quicken the rate of capital formation and investments for the pure purpose of development and growth.
Whereas in developed countries, the main objective of the fiscal policy is to maintain stability. Although the long run goal of any fiscal policy is to maintain stabilisation by moderating short run economic fluctuations. Though inflation cannot be avoided in the growth process, yet it has to be under full control as otherwise the benefits of growth will be eaten away by inflation.
Fiscal policy also helps in removing the sectoral imbalance in the economy objectives of fiscal policy the process of growth.
Top 8 Objectives of Fiscal Policy
Usually in a developing economy, the price level may go up in certain sector in the growth process affecting that sector badly. Fiscal policy through appropriate tools can always prevent this sectoral imbalance, and help to maintain overall price stability.
Fiscal policy provides the necessary incentives for the industries which are capable of generating employment opportunities in large scale.
For instance, the small scale industries are employment oriented and so fiscal policy can extend incentives to them. Maintain the inflation rate: The rate of inflation is the increase in the cost of goods and services over a period.
Ideally, fiscal policy aims to keep the rate of inflation no higher than 3 percent. Benefits and Downsides of Fiscal Policy If inflation gets too high, a government objectives of fiscal policy use fiscal policy to help curb the problem.