Monday, 23 May 2011

What is Fiscal Policy and discuss its objectives and role in the Economics Development

Fiscal Policy :-
It is defined as the process of shaping government taxation and expenditure to achieve desired economic and social objectives.
The objectives of fiscal policy are not specified these change with the level of economic development. The objectives of fiscal policy may differ from country to country. Following are the main objectives of fiscal policy in the development countries.

Objectives and Role of Fiscal Policy

1. Increase in Savings :-
This policy is also used to increase the rate of savings in the country. In the developing countries rich class spends a lot of money on luxuries. The government can impose taxes on them and can provide the basic necessities of life to the poor class on low rate. In this way by providing incentives, savings can be increased.

2. To Encourage Investment :-
The government can encourage the investment by providing various incentives like the tax holiday in the various sectors of the economy. The capital can be shifted from less productrive sectors to more productive sectors. So the resources of the country can be utilized maximum.

3. To Achieve Equal Distribution of Wealth :-
Fiscal policy is very useful for the achievement of equal distribution of wealth. When the wealth is equally distributed among the various classes then their purchasing power increases which ensures the high level of employment and production.

4. To Control Inflation :-
Fiscal policy is very useful weapon for controlling the rate of inflation. When the expenditure on non productive projects is reduced or the rate of taxes are increased then the purchasing power of the people reduces.

5. To Reduce the Regional Disparity :-
In the less developing countries the regional disparity is found. Some areas are more developed while the others are less developed. Government provides the infrastructure facilities in less developed areas. The tax holiday incentive is also provided in these areas which is very useful in increasing the per capita income.

6. Stabilization of Price Level :-
Fiscal policy is also used to achieve desirable level of prices in the country. It means the cost and price should be at such level that production and employment may increase.

7. Increase in Agriculture and Industrial output :-
Fiscal policy is also used that the output of various sectors of the economy must increase. The demand inside and out side the country should be satisfied.

8. To Attain Maximum Welfare of the People :-
Fiscal policy main objective is to achieve maximum welfare of the people. The quality of life must improve in the country.

9. To Check Rapid Increase in Consumption :-
Fiscal policy is also used to check the rapid increase in the consumption will be high then the rate of saving will be low and consequently rate of investment will be low. So one country cannot improve its economic condition without increasing the investment.

10. To Achieve Economic Stability :-
The aim of fiscal policy is to increase the rate of production and employment without inflation. So in all the countries fiscal policy major objective is to ensure the economic stability in the country.


1. In order to reduce regional disparity tax holidays has been given to various industries which are set up in under developed areas.
2. The machinery which is imported for installation has been exempted from custom duty and sales duty.
3. The duty on the imports of raw material and spare parts of machinery is reduced.
4. Tax rebates are also given on the export of Cotton Textile Products.
5. The income tax limit is also increased in the budget to increase the rate of saving.
6. The Prime Minister and Officers will not use the heavy Cars. This step has been taken to reduce the expenditure on luxury in country.

Any how fiscal policy is very useful weapon for the development of any country.


Anonymous,  26 November 2011 at 06:20  

very help ful notes really

khubaib Hikmat 6 February 2014 at 20:23  

very helpful article in preparing presentation of Objectives of Fiscal Policy. Thanks

Post a Comment

Google+ Followers

  © Blogger template Blue Surfing by Trade Cycle 2014

Back to TOP