about fiscal policy

1. FISCAL POLICY
Prepared by:
Parmar Urvi (14cse54)
Katar Surbhi (14cse56)
Piprotar Monika (14cse59)

2. INTRODUCTION
• One major function of the government is to
stabilize the economy (prevent unemployment
or inflation)
• Stabilization can be achieved in part by
manipulating the public budget-government
spending and tax collections-to increase
output and employment or to reduce inflation.

3. What is fiscal policy?
changes in government spending or taxes
to alter the economy.
The fiscal policy is concerned with the
raising of government revenue and
incurring of government expenditure.
To generate revenue and to incur
expenditure, the government frames a
policy called budgetary policy or fiscal
policy.

4. Fiscal Policy

5. Continue…
• the fiscal policy is concerned with
government expenditure and government
revenue.

6. Fiscal Policy
• The use of government spending and taxation to
promote economy

7. According to Semuelson:
“Fiscal policy is concerned with all those activities which
are adopted by the government to collect revenues and
make the expenditures so that economic stability could
be attained without inflation and deflation”

8. Types of Fiscal policy
• Neutral Fiscal policy
• Expansionary Fiscal policy
• Contractionary Fiscal policy

9. Neutral Fiscal policy
G=T (Govt. spending = Tax Revenue)
neutral effect on economy

10. Expansionary Fiscal policy
• Expansionary fiscal policy means that the government is increasing
government spending and reducing taxation in an attempt to increase the
money available in the economy.
G > T
T G
Contractionary Fiscal policy
• Contractionary fiscal policy is when the government increases taxation and
reduces government spending in an attempt to reduce money in the
economy and as a result inflation.
G < T
T G

11. What are examples of
expansionary fiscal policy?
• Increase government
• Spending
• Decrease taxes
• Increase government
• Spending and taxes equally

12. What are examples of
contractionary fiscal policy?
• Decrease government
• Spending
• Increase taxes
• Decrease government
• Spending and taxes equally

13. Main Objectives of
Fiscal Policy In India
• Development by effective Mobilisation of
Resources
• Efficient allocation of Financial Resources
• Reduction in inequalities of Income and
Wealth
• Price Stability and Control of Inflation
• Employment Generation

14. • Balanced Regional Development
• Reducing the Deficit in the Balance
of Payment
• Increasing National Income
• Foreign Exchange Earnings

15. What is the purpose
of fiscal policies?
To achieve long-run growth in output, full
employment, and a lower price level

16. • There are mainly three types of fiscal
measures,
• A) Taxes
• B) Public expenditure - public borrowing
Measures of fiscal policy

17. Criticisms of Fiscal Policy
Disincentives of Tax Cuts.
Side Effects on Public Spending.
Poor Information
Time Lags.
Budget Deficit
Other Components of AD

18. Demand-side fiscal policy
• A fiscal policy that emphasizes government
policies that increase Demand.

19. Supply-side fiscal policy
• A fiscal policy that emphasizes government
policies that increase Supply.

20. Will an increase in taxes
lead to highergovernment revenues?
Laffer Curve
The idea that increasing taxes from zero will
increase tax revenues up to a certain point.

21. Side Effects on Public
Spending.
• Reduced govt. spending to Increase
AD could adversely effect public
services such as public transport
and education causing market
failure and social inefficiency.

22. Effect of fiscal policy
• Unemployment
• Expansion
• Contraction
• Inflation Issues

23. ACTIVITIES OF THE STATE
Collection of Revenues
Spending of Revenues

24. ACTIVITIES OF THE STATE ( cont.)
• Collection of Revenues
 Taxes
 Fees
 Fines
 Loan
–Internal Loans
–External Loans

25. ACTIVITIES OF THE STATE ( cont.)
Spending of Revenues
 Productive
 Non-Productive

26. • Productive Non-Productive
• Dams Health
• Roads Education
• Mills Defense
• Bridges Justice
• Railways Social Security
• Electricity Plants Embassies
• Engineering unit Politics

27. Objectives
 To Achieve Equal Distribution of Wealth
 Increase in Savings
 Degree of inflation
 To Achieve Economic Stability
 Price stability

28. Limitation of Fiscal Policy:
• Lack of Elasticity
• Illiteracy
• Limited Sector
• inadequate Statistics
• Delay in decision

29. Suggestions and
Recommendations

30. –Road map
Keeping
inflation under
control
growth
momentum
Improving
social
indicators
Maintain fiscal
prudence by
keeping fiscal
deficit low

31. Thank You