Introduction

Fiscal Policy is the main part of

Economic Policy and Fiscal Policy's first word
Fiscal is taken from French word Fisc  it means
treasure of Govt. So we can define fiscal policy
as the revenue and expenditure policy of Govt.
of India .It is prime duty of Government to make
fiscal policy . By making this policy , Govt.
collects money from his different resources and
utilize it in different expenditure . Thus fiscal
policy is related to development policy . All
welfare projects are completed under this policy
 OBJECTIVES
• 1. To achieve desirable price level
2. To Achieve desirable consumption level

3. To Achieve desirable employment level

4. To achieve desirable income distribution:

5. Increase in capital formation

6. Degree of inflation
 INSTRUMENTS
• Budget
• Government expenditure
• Taxation- direct and indirect
• Public debt
• Deficit financing
• Government borrowing
 BUDGET
• “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.
 COMPONENTS OF BUDGET
• Revenue receipts
• Capital receipts
• Revenue expenditure
• Capital expenditure
 Government Expenditure
 It includes :
• Government spending on the purchase of
goods & services.
• Payment of wages and salaries of
government servants
• Public investment
• Transfer payments
 Taxation
• Meaning : Non quid pro quo transfer of
private income to public coffers by means
of taxes.
• Classified into
1. Direct taxes- Corporate tax, Div.
Distribution Tax, Personal Income Tax, Fringe
Benefit taxes, Banking Cash Transaction Tax
2. Indirect taxes- Central Sales Tax,
Customs, Service Tax, excise duty.
 Public debt
• Internal borrowings
1. Borrowings from the public by means of treasury bills
and govt. bonds
2. Borrowings from the central bank (monetized deficit
financing)
• External borrowings
1. foreign investments
2. international organizations like World Bank &
IMF
3. market borrowings
Deficit financing
GOVERNMENT BORROWING
Fiscal Policy Can Be Divided In Two Types.
 Fiscal Measures to control
inflation
• (a) Reduction in Unnecessary
Expenditure
• (b) Increase in Taxes
(c) Increase in Savings
• (c) Increase in Savings
• (d) Surplus Budgets
• (e) Public Debt
 Criticisms of Fiscal Policy
• Disincentives of Tax Cuts
• Side Effects on Public Spending
• Poor Information
• Time Lags
• Budget Deficit
• Other Componenets of AD
• Depends on Multiplier
• Crowding Out
Fiscal measures to control
deflation