Purpose of Fiscal Policy

    In modern times, the objectives of fiscal policy are as follows:

(i)   Best possible provision of Resources: One of the main objectives of fiscal policy in developing countries is to mobilize economic resources. It should be formulated so as to secure use and optimum allocation of economic resources like money, men and material. This means that government should not misuse resources and ensure maximum productive utilization of economic resources.

(ii) Perfection in fair allocation of Income: survival of inequality in income and wealth in developing countries is wide spread. It is undesirable from the point of view of social justice. The government should adopt suitable fiscal policy to reduce inequality of income and wealth. It should be designed to reduce the economic disparity between the rich and poor to the least. Fiscal policy is the power instruments to reduce income inequality by the appropriate tax rate.

(iii) Price constancy: Another important objective of fiscal policy is maintaining price stability. The price instability represents both inflationary and deflationary tendencies. But the negative effect of inflationary tendencies in developed countries. Deflation leads to decline in economic activity. Inflation affects adversely the fixed income groups. Fiscal policy should aim at securing price stability by counteracting inflationary and deflationary tendencies in the economy.

(iv) Economic increase: The vicious circle of poverty in developing countries is mainly caused by the deficiency of capital. In this context, according to Mlier and Baldwin, “The overall concern of the government’s fiscal policy should be directed towards maximizing savings, mobilizing them for production, investment and channel zing them into directions that will best secure the objectives of a balanced development program”. The basic objective of fiscal policy in developing countries is to accelerate the economic development through capital formation.

(v) Full service: In modern time, the ultimate objective of all government economic policy including fiscal policy is to provide and achieve full employment. An appropriate fiscal policy helps to maintain full employment. For this, the economy should maintain its growth rate in commensurate with the growth of population. The fiscal policy should be designed to ensure that the rate of increase in revenue, and the rate of increase in employment opportunities are much higher than the rate of growth of population

One thought on “  Purpose of Fiscal Policy”

  1. I must show my affection for your generosity supporting persons that must have guidance on in this niche. Your personal commitment to getting the message across had become remarkably effective and has constantly allowed many people like me to arrive at their targets. Your entire helpful advice indicates a lot to me and somewhat more to my peers. Best wishes; from everyone of us.

Leave a Reply

Your email address will not be published. Required fields are marked *