BICOL UNIVERSITY

GRADUATE SCHOOL
LEGAZPI CITY

Name: GRACE R. CAMPOS Year & Course: 2ND YR EDD ELM

Course Code and Description: PhDPA 311 Financial Management in Government
Professor: DR. RAMESIS LORINO

MODULE 2 - 4
ROLE OF FISCAL POLICIES IN DEVELOPING ECONOMIES

Table of Comparison of the Roles of Fiscal Policy in Developing and Developed Countries
Features Developing Countries Developed Countries

Structure of the Economy Developing countries have Developed countries have

low GNP per capita, a small a relatively high level of
manufacturing base, low economic growth and
annual per capita growth security. Standard criteria
rate, and stagnant or for evaluating a country's
declining levels of food level of development
production. Developing are income per capita or
countries rely on per capita gross domestic
predominantly agricultural product, the level of
economies. The majority of industrialization, the
earners fall under the general standard of
category of self-employed living, and the amount of
persons. technological
infrastructure. Fluctuations
in the economy originate in
developed countries
through foreign trade,
foreign investment, and
foreign borrowing.
Developed countries also
have per capita income of
$100 or less, a share of
manufacturing in GDP of
10% or less, and literacy
rates of 20% or less.
Appropriate Tax Policy Developing countries more Developed countries today
heavily on trade taxes, as collect a much larger share
well as taxes on of their national output in
consumption. taxes than do developing
countries, and they tend to
rely more on income
taxation to do so.
Appropriate tax Favor new projects at the Tax policy tends to accept
expenditure policy cost of the existing the level of expenditures as
infrastructure. New roads its revenue goal.
are built while existing ones
are allowed to deteriorate.
 Tax policy is the level of
expenditures that is
dependent much more
heavily on the ability of the
tax system to place the
required revenues at the
disposal of the government.
Appropriate borrowing Developing countries rely Developed countries have
policy on international low borrowing rates.
borrowing to finance Developed countries offer
special projects, and loans and partnerships with
infrastructure and to LDCs to boost the
compensate for needed economic growth of both
revenue that cannot be countries.
obtained through taxation.
Developing countries are
on the bottom list of
borrowers for foreign loans.

REFLECTION:

Charges are levied by governments against their people and enterprises to

generate cash that is then used to fund their spending priorities. This entails funding
governmental and public initiatives as well as improving the nation's business climate to
promote economic growth. Tax is the blood of a country. Taxes are reportedly the cost of
living in a civilized society. The public goods and services that everyone relies on are
simply not financed by governments without taxes.

Despite Asia's outstanding progress in lowering poverty and raising living

standards, several countries still struggle to raise enough money. The world has
witnessed this when several nations in the region invest relatively little in public
healthcare, social protection, and education. The severe COVID-19 pandemic's effects,
which included a stretched educational system, overcrowded hospitals, and insufficient
financial aid for the poor, served as a stark illustration of the spending inadequacies in
these areas. Insufficient taxation and financial resources are ultimately to blame for all
these issues.

Traditional tax revenue sources are under more pressure than ever as public
spending as a percentage of total national income has increased. The distribution of these
taxes differs greatly amongst nations since they all have different ideas about what
constitutes a fair distribution of taxes. Governments have been hesitant to considerably
raise indirect taxes because reducing inflation has been one of their top priorities.
Taxation is not the only way for a government to generate income. It has two options: it
either charge for the services it offers or engages in lucrative business ventures. All
Western governments engage in some degree of this, however, the amount of money
raised is significantly less than what is obtained from taxation.

It is uncommon for any modern budget to balance in any one year, even though
taxes raise the majority of the resources needed for public spending each year.
Governments may decide to raise some of their resources by borrowing rather than taxing
for a variety of reasons, ranging from a desire to expedite capital spending to a policy of
economic stabilization. Today, most nations have annual budget deficits, and these
deficits have a tendency to grow in magnitude.

To balance the expenses of a country, the government should impose

appropriate taxation, spending, and borrowing. Governments use spending and taxing
powers to promote stable and sustainable growth. The collapse of a country’s economy
is brought about by improper borrowing, spending, and taxation. Therefore, it is vital that
policy and lawmakers craft programs that will sustain the economic growth of a country
to avoid international and internal debts. Focusing on the resources of a country will aid
in developing more programs that will improve the economy through increased
employment and business that will consequently increase tax collections of a country.

Governments require sustainable sources of funding for social programs and

public investments to promote economic growth and development. To realize the shared
objective of a successful, useful, and orderly society, programs offering health, education,
infrastructure, and other services are crucial to a country. These services and programs
demand that governments generate income. In addition to financing public goods and
services, taxation is a crucial component of the social contract that unites people and the
economy. A government's very legitimacy can be determined by how taxes are collected
and used. Holding them responsible promotes efficient tax administration and, more
broadly, sound public financial management.