Fiscal Policy India and Canada

Essay by gunja May 2009

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Fiscal policy is the use of government taxing and spending powers to affect the behavior of the economy. The economy's total output, income and employment levels are directly related to total private and public spending or aggregate demand. Private spending consists of purchases of goods and services by consumers, by businesses for investment, and net exports (exports minus imports). For their part, governments raise revenues from taxes such as the income tax, sales taxes and payroll taxes, and from other sources to spend on such things as health care, education, pensions, social assistance and defense. Fiscal policy refers to policy concerning the use of state treasury or Govt finances to achieve macroeconomic goals.

It is the government programme of making discretionary changes in the pattern & level of its expenditure, taxation & borrowings in order to achieve economic growth, employment opportunities, income equality & stabilization of the economy.

Fiscal policy is the economic term that defines the set of principles and decisions of a government in setting the level of public expenditure and how that expenditure is funded.

It is the deliberate change in government spending, government borrowing or taxes to stimulate or slow down the economy. It contrasts with monetary policy, which describes the policies about the supply of money to the economy. Fiscal policy is also called as “Budgetary Policy”Following are the objectives of Fiscal Policy:•To achieve desirable price level•To Achieve desirable consumption level•To Achieve desirable employment level•To achieve desirable income distribution•Increase in capital formation•Degree of inflationFiscal Policy is implemented through fiscal instruments which are:a)Budgetary Surplus and Deficit: Keeping budget in balance itself is a fiscal instrument. When the government spends more than its expected revenue, it is pursuing a deficit –budget policy. When the government follows a policy of keeping its expenditure below its current revenue it...