Objectives of Fiscal Policy

Answer 1

Fiscal policy is when the government utilizes spending and / or taxation in order to achieve certain economic goals. For example, by cutting taxes or spending money, the government hopes to stimulate economic activities. By increasing taxes or decreasing spending, it might be trying to slow down economic activity to prevent inflation.

Objectives of Fiscal Policy?

Fiscal policy is the policy concerning the revenue expenditure and debt of the Government for achieving certain objectives like control of inflation, public expenditure etc. Fiscal policy defines as "the conscious attempts of Government to achieve certain macro goals of policy by altering the volume and pattern or its revenue and expenditure and balance between them".

1. Full Employment: the main aim of every Government is to attain full employment level. "Full employment simply means that man power is ready to work at a prevailing wage rate without any dispute.'' In order to achieve full employment level, Government increases public expenditure to raise aggregate demand and tax rate is decreased.

2. Price Stability: - When price rise i.e. inflation in an economy, fiscal policy aims at decrease in demand and aggregate expenditure and tax rate is also raised. Extra purchasing power of people goes into the hands of general public and demand decreases because of excess supply, prices automatically go down because of fear of stocks.

3. Reduction in Economic inequality: - In a democratic country like India the prominent aim of fiscal policy is remove economic inequality. To remove economic inequality progressive direct taxes like income tax, property tax are levied at a higher scale because the burden of such taxes generally falls on rich people. The income generated from these taxes is used for the welfare of the poor masses and to raise their standard of living.

4. Economic Development: - Economic development is an important feature of underdeveloped countries. To achieve development of a country, fiscal policy acts as a source of capital formation because as capital formation is increased, production and employment also increases.

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