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OBJECTIVES
FISCAL POLICY HAS TWO MAJOR OBJECTIVES
General Objectives - Aimed at achieving macroeconomic goals Specific Objectives Related to any typical problems of economy
Govt. Expenditure
Taxation Direct & Indirect Public Debt Deficit Financing
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HOW DOES FISCAL POLICY AFFECT THE ECONOMY ? Aggregate demand which is the total demand for goods and services in the economy depends on three main variables : Consumption Private investment & Government Spending When the Govt. Increases its expenditure then it spurs the aggregate demand in the economy. A higher aggregate demand in turn will stimulate output, growth & employment. Whereas if the govt. Lowers its spending then it decreases the aggregate demand & hence slow down the growth of economy 6
FISCAL DEFICIT
It is an economic phenomenon where the govt.s expenditure surpasses the revenue generated It is the difference between the govts Total receipts excluding the borrowing & Total expenditure i.e. Total govt expenditure Revenue receipt + Non - Debt capital receipt
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GOVERNMENT RECEIPT
Total Government Receipt
Revenue Receipt
Capital Receipt
Tax Revenue
Recovery Of Loans
CAPITAL RECEIPT
A capital receipt is a receipt which is derived from sale or purchase of capital assets like plant & machinery, furniture ,investment (long-term) etc . which shall not be occurring all the time
REVENUE RECEIPT
It consists of tax collected by the govt. & other receipts consisting of interest & dividend on investment made by govt. & other receipts for services referred by govt. Revenue Receipt includes: Tax Revenue Receipt Non tax revenue receipt
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GOVERNMENT EXPENDITURE
Revenue Expenditure
Planned Expenditu re
Government Expenditure
Capital Expenditure
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PLANNED EXPENDITURE
It refers to the expenditure incurred by the government on programmes/projects which are recommended by the planning commission
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Fiscal Deficit = (Total Expenditure) (Revenue Receipt + Non Debt Capital Receipts) Primary Deficit = Fiscal Deficit Interest Payment
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TAXATION
It is the act of levying taxes
OBJECTIVES OF TAXES
Raising Revenue Encouraging Domestic Industry Reducing Income Inequalities Promoting Economic Growth Development Of Backward region Ensuring price stability
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CLASSIFICATION OF TAXES
On the basis of form, nature & method the most common & traditional classification is to classify tax into
Direct tax Indirect tax
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DIRECT TAX
Direct tax is that tax whose burden is borne by the same person on whom it is levied . It is based on the Income & property of a person
Example Income tax , Corporation tax , tax on companys profit , Property tax , Wealth tax etc
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INDIRECT TAX
Indirect tax is that tax which is initially paid by one individual but the burden of which is passed over to some other individual who ultimately bears it
Example- excise duty , sales tax, entertainment tax , custom duty etc.
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Regressive tax
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PROGRESSIVE TAX
When the rate of taxation increases as the payers income increases , it is called a progressive tax
In this system the rate of tax goes on increasing with every increase in income
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REGRESSIVE TAX
A Regressive tax is one in which the rate of taxation decreases as the tax payers income increases. Lower income is taxed at a higher rate whereas higher income is taxed at a lower rate
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SURCHARGE
It is basically an additional sum(tax) added to the usual amount or cost(tax) CESS It is an alternative term for tax
For example Road cess, Oil cess, Education cess, water cess
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CONCLUSION
We can say that the instrument of Taxation is of great significance on : Increasing the level of economic activity Reducing income inequalities Promoting economic growth Social welfare objectives (i.e.. tax payment helps reduce the gap between the have & have not as it helps in mobilizing the surplus income from the haves & reinvesting them for public welfare , it helps these surplus funds to reach the haves not)
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REFERENCES :
D N DWIVEDI : Managerial Economics
http://finance.indiamart.com/taxation/income_tax/rate s http://en.wikiprdia.org/wiki/income_tax.india
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THANK YOU !!
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