Fiscal policy can be explained as a policy executed by the government to produce desirable effect on national income, output and employment. There are two type of fiscal policy they are - Contractionary & Expansionary.It helps the government by creating an environment for rapid economic growth. It helps in stabilizing the prices. It minimizes the inequalities of income & wealth.The word FISCAL is derived from Greek word FISC meaning basket. The word FISC was used to devote the income and expenditure operations of the Government. Thus, fiscal policy can be explained as a policy executed by the Government to produce desirable effects on national income, output and employment. Thus, broadly speaking, PUBLIC EXPENDITURE+PUBLIC REVENUE constitute the tools of fiscal policy which are at the disposal of the Government to pursue its micro and macro economic goals, through taxation and expenditure policies.
[...] Stamp duty: It is levied on the purchase of shares and securities, the issue of bearer instruments and transfer of land, currency transactions or certain such transactions. These duties reduce the liquidity of the instruments and thus most often levied for discouraging speculative purchases of assets .stamp duty on currency transactions is known as Tobin tax. Value added tax: This tax applies the equivalent of excise or sales tax to every operation that creates value. It is assessed at each stage of production and covers both producers and traders . [...]
[...] Continuously increasing share of revenue deficit in the fiscal deficit adversely affects public investment and hence, has adverse impact on the productive capacity of the economy in the long run. On the other hand, falling revenue deficit, for a given level of fiscal deficit implies that the borrowed funds are used for capital formation. It's a healthy trend as it enhances the productive capacity of the economy Fiscal Deficit = Total expenditure - (Revenue receipts + Recovery of Loans + Receipts from the sale of assets) i.e = (Revenue expenditure + capital expenditure) (Revenue receipts + own capital receipts + capital grants Recoveries + sale of public assets). [...]
[...] A regressive tax and even the proportional tax system tend to increase the inequality of incomes. On the other hand, a more sharply progressive tax system tends to reduce inequality. Sharper the progression in the tax system stronger is the reduction in inequalities of income. Thus, consideration of distribution supports most sharply progressive tax system. This also implies that taxation should be according to ability to pay. However, consideration of production may make sharply progressive tax system undesirable. EFFECT ON INFLATION Direct and indirect taxes affect prices and, hence, inflation differently. [...]
[...] Corrections in fiscal deficits brought about by reduction in revenue deficit often leads to compression in capital expenditure adversely affecting the productive capacity of the economy. Primary deficit Primary deficit= gross fiscal deficit Interest payments. =(Revenue expenditure+ capital expenditure)-(Revenue receipts + capital grants + Recoveries + sale of public assets)-(interest payments) = (E1+E2+E3+E4)-(R1+R2+R3+R4+R8+R9)-(E1) = (E2+E3+E4)-(R1+R2+R3+R4+R8+R9). = R5+R6+R7-E1. IT OCCURS WHEN THE GOVT REVENUE IS NOT SUFFICIENT TO MEET THE govt non- interest expenditure. Gross vs. Net deficit A sizeable part of central govt borrowings is lent to other sectors –state & local govts, public sector enterprises etc. [...]
[...] The various objectives of fiscal policy are as follows: Mobilization and efficient allocation of resources: Developing countries are characterized by low level of income and investment leading to vicious circle of poverty. Fiscal Policies aims at breaking this circle by mobilizing and generating resources, and investing the limited resources in efficient ways. Minimization of inequalities of income and wealth. Fiscal tools are used with the objective of bringing about redistribution of income in favor of the poor by taxing the rich and spending the so raised revenue on various social welfare activities .Distributions of income affects consumption and saving, and also has political and social impact. [...]
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