Fiscal Policy- Jaimon James

8/6/2019 Fiscal Policy- Jaimon James

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Fiscal Policy

Presented By:

Jaimon James C



Fiscal Policy-Meaning

� Fiscal policy is the means by which a

government adjusts its levels of spending in

order to monitor and influence a nation¶seconomy.

� Fiscal policy is that part of government policy which is concerned with raising

revenue through taxation and other means

and deciding on the level and pattern of

ex enditure.



O bjectives of Fiscal Policy

� To achieve desirable price level

� To achieve desirable consumption level� To achieve desirable employment level

� To achieve equality in income distribution

� Increase in capital formation� Degree of Inflation



Fiscal Policy And

Macroeconomic Goals� Economic Growth

� Employment

� Economic Equality

� Price stability:



Instruments of Fiscal Policy� Budgetary surplus and deficit

� Government expenditure

� Taxation

� Public debt

� Deficit financing



Budgetary surplus and deficit� 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.



Government ExpenditureIt includes :

� Government spending on the purchase of

goods & services.

� Payment of wages and salaries of

government servants

� Public investment

� Transfer payments



Taxation

1. Direct taxes- Corporate tax, Personal Income

Tax, Fringe Benefit taxes, Banking Cash

Transaction Tax

2. Indirect taxes- Central Sales Tax, Customs,Service Tax, excise duty.



Public debtInternal borrowings

1. Borrowings from the public by means of treasury billsand govt. bonds

2. Borrowings from the central bank (monetized deficitfinancing)

External borrowings

1. foreign investments

2. international organizations like World Bank &IMF

3. market borrowings



Deficit financing� It is a practice in which the government

spends more money than it receives as

revenue

� It involves conscious attempt to stimulate

the economy by lowering tax rates or

increasing government expenditures



Three possible positions of the

Fiscal policy

1. Neutral Position

2. Expansionary Position

3. Contractionary Position



Neutral Position� The Neutral position applies when the

budget outcome has neutral effect on the

level of economic activity where the govt.

spending is fully funded by the revenue

collected from the tax.



Expansionary Position� The Expansionary position occurs when there

is a higher budget deficit

� The govt. spending is higher than the revenue

collected from the tax, in this position



Contractionary Position� The Contractionary position occurs when there is

a lower budget deficit where the govt. spending is

lower than the revenue collected from the tax.



THANK YOU..

Fiscal Policy- Jaimon James

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