The

Operation of
Fiscal Policy

By
Tammana Sampath
Kumar
FISCAL POLICY
 Itis the policy under which the government of a
country uses taxation, public expenditure and
public debt programmes to achieve pre-
determined economic and social goals and to
solve specific problems in the economy.
OBJECTIVES OF FISCAL POLICY
 Attainment of full employment of resources;
 High rate of economic growth;
 Optimum allocation of economic resources;
 Equitable distribution of wealth and income
 Price stability;
 Control of business cycles;
 Balanced growth; and
 Export development.
INSTRUMENTS OF FISCAL POLICY AND THEIR
MECHANISM
 A tax is a compulsory levy imposed by the
government on economic units. Taxes can basically
be classified into direct and indirect taxes. A direct
tax is generally defined as the one the incidence of
which rests upon the person or institution who bears
the impact also. If the incidence is passed on to
others, it is called indirect tax. Income tax, wealth
tax, corporation tax, and estate duty are examples of
direct tax. Custom duties, excise duty, value added
tax and sales tax are indirect taxes
Public Expenditure
 Public expenditure, as an instrument of fiscal
policy, involves a change in any one or more
of the following:
 Size of public expenditure;
 Composition of expenditure (consisting of
revenue expenditure and capital expenditure
and its sub-categories);
Public Expenditure
 Direction of expenditure (i.e. its allocation
pattern); and
 Institutions and administration of public
expenditure
Public Debt

 Public borrowings or changes in public

debt immediately affect money and
credit supply and, in later rounds, rate of
interest, aggregate demand, price level
and eventually the rate of growth.
Conclusion

 Fiscaloperations of the government have

profound effect on the business sector of an
economy
thank you