FISCAL POLICY

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.

objectives
i.

GENERAL objectives - aimed at achieving

macroeconomic goals
ii. SPECIFIC objectives - relating to any typical
problems of an economy

Fiscal Policy And Macroeconomic Goals

Economic Growth: By creating conditions for
increase in savings & investment.
Employment: By encouraging the use of labourabsorbing 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.

Instruments of Fiscal Policy

Budgetary surplus and deficit

Government expenditure
Taxation- direct and indirect
Public debt
Deficit financing

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

Government Expenditure
It includes :
Government spending on the purchase of
goods & services.
Payment of wages and salaries of government
servants
Public investment
Transfer payments

Taxation

Meaning : Non quid pro quo transfer of

private income to public coffers by means of
taxes.
Classified into
1. 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.

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.

COMPONENTS OF BUDGET

Revenue receipts
Capital receipts
Revenue expenditure
Capital expenditure

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.