FISCAL POLICY

DEFINITION
“Fiscal policy refers to the policy of the
government as regards taxation, public
borrowing and public expenditure with
specific objective in view. These objectives are
to produce desirable effects and avoid
undesirable effects on the national income,
production, employment and general price
level.”
 The Importance Of Fiscal Policy
After the Great Depression in 1930 the
popularity of fiscal policy came into existence
due the following three factors :
• To overcome the unemployment level after great
depression in 1930
• The development of the ‘new economies’
• The growing importance of government
spending and taxation in relation to total income
and output
 ECONOMIC STABILIZATION
• AUTOMATIC STABILIZERS
• DISCRETIONARY FISCAL POLICY
 AUTOMATIC STABILIZERS
• An automatic stabilizer is an expenditure
programme or tax law that automatically
increases expenditures when an economy
enters a recession and automatically
decreases expenditures when an economy
enters a period of inflation
 DISCRETIONARY FISCAL POLICY
• Discretionary fiscal policy implies delibrate
changes undertaken by the government of a
country in the tax rates and planned outlays in
an effort to stabilize the economy
 INSTRUMENTS OF FISCAL POLICY
• Taxation
• Public Borrowing
• Forced Savings or Deficit Financing
• Public Expenditure