Fiscal Policy as an Economic Stabilization Measure
FISCAL POLICY AS AN ECONOMIC STABILIZATION MEASURE
Fiscal Policy refers to the various decisions undertaken by the government regarding public expenditures and revenue. There are a large number of sub-policies that are encompassed by the fiscal system. But all the policies can be broadly categorized as being either ‘Public Expenditure’ or ‘Public Revenue’. It can be said that the fiscal policy is a direct government intervention in the economic processes of an economy.
The fiscal policy is very objective in nature, since it creates decisions that can be uniformly applied to the entire economy or to a segment of the economy. The fiscal policy is considered to be more direct than the monetary policy in its impact on the economy. While the monetary policy’s success depends on the banking / financial system, the fiscal policy operates in an inherent manner in the economy. The fiscal policy’s sub-policies are:
The Annual Budget of the government – this is a policy statement that directs all economic activities for at least a year.
Public Debt – this helps the government to raise resources on a quid-pro-quo basis.
Deficit Financing – wherein the government can order its Central Bank to release additional money equivalent to the size of the deficit in its budget.
The Taxation structure – through this fiscal tool the government is able to raise resources on a non-quid-pro-quo basis.
A wide range of public expenditures – covering productive items (like: irrigation projects, industrial investments, EOC and SOC) and unproductive items (like: welfare measures and general administrative expenses).
Depending upon whether the Fiscal Policy increases or decreases the public expenditure in the economy, it is possible to categorize the fiscal policy into two types:
An Expansionary Fiscal Policy – in this case, there is an increase in public expenditure and so there is an improvement in the income generating capacity in the economy. An
Fiscal Policy refers to the various decisions undertaken by the government regarding public expenditures and revenue. There are a large number of sub-policies that are encompassed by the fiscal system. But all the policies can be broadly categorized as being either ‘Public Expenditure’ or ‘Public Revenue’. It can be said that the fiscal policy is a direct government intervention in the economic processes of an economy.
The fiscal policy is very objective in nature, since it creates decisions that can be uniformly applied to the entire economy or to a segment of the economy. The fiscal policy is considered to be more direct than the monetary policy in its impact on the economy. While the monetary policy’s success depends on the banking / financial system, the fiscal policy operates in an inherent manner in the economy. The fiscal policy’s sub-policies are:
The Annual Budget of the government – this is a policy statement that directs all economic activities for at least a year.
Public Debt – this helps the government to raise resources on a quid-pro-quo basis.
Deficit Financing – wherein the government can order its Central Bank to release additional money equivalent to the size of the deficit in its budget.
The Taxation structure – through this fiscal tool the government is able to raise resources on a non-quid-pro-quo basis.
A wide range of public expenditures – covering productive items (like: irrigation projects, industrial investments, EOC and SOC) and unproductive items (like: welfare measures and general administrative expenses).
Depending upon whether the Fiscal Policy increases or decreases the public expenditure in the economy, it is possible to categorize the fiscal policy into two types:
An Expansionary Fiscal Policy – in this case, there is an increase in public expenditure and so there is an improvement in the income generating capacity in the economy. An
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