FISCAL POLICY

(Public Finance)

Fiscal

Has been derived from the Latin word

fiscus.
Money bag
Pertains to public treasury or revenue.

FISCAL POLICY

Refers to the revenue and expenditure

measures of the public budget.

Basically involved in taxation and

government expenditure.

PUBLIC FINANCE

The study of the role of the government in

the economy.

It is the branch of economics which

assesses the government revenue and
government expenditure of the public
authorities and the adjustment of one or the
other to achieve desirable effects and avoid
undesirable ones.

Discretionary Fiscal
Policy

Defined as the deliberate use of change

in government spending or taxes to alter
aggregate demand and stabilize the
economy.

It is classified into two basic types:

1. Expansionary fiscal policy
2. Contractionary fiscal policy

Fiscal Policies formulation

involves:

Voters/constituents

Congress
Legislative body.

Executive Branch
President and his cabinet.

Fiscal Policy Formulation

The government collects revenues and

spend these to fund various sectors of
the economy , such as education,
agriculture, public works, national
defense, health, and so forth.
Such public money is allocated through
the national budget system.

Objectives of Fiscal
Policy

Provisions for social goods

Equitable distribution of wealth and income

High employment

Price Stability

Satisfactory rate of growth

Fiscal Functions

Allocation Function

Distribution Function

Stabilization Function

Fiscal Functions
Allocation Function
-Production
-Consumption
-Tax
-Subsidies
-Prohibit or require certain production

Fiscal Functions

Distribution Function

Government Policy on:

-Tax
-Expenditure

Fiscal Functions

Stabilization Function

Government decisions on:

-Revenues
-Spending
-Surplus
-Deficit
-Lending
-Borrowing

Fiscal Politics

People elect their own representatives in

the legislative body.

The representative have the responsibility

to work for the interest of their respective
districts or region.

If they fail in their duties and

responsibilities people change them
through election.

Public Expenditure

Indicated in the national budget.

- shows the specific programs and
projects of the government in every
year.

Mirror the major thrust of the national

government.

Evaluating Public
Expenditure

Can be evaluated by comparing their

costs and benefits.

If benefits > cost = expenditures have

been done efficiently.

If public expenditures created:

More jobs
More products
More services
More schools
More hospitals
More houses

*ECONOMIC GROWTH

Expenditures are relevant:

If the programs and projects made by

the government touched the lives of the
poorest of the poor.

Social Justice
- First and last consideration in evaluating
the merits of public expenditures.

Taxation

Is a means of raising funds for the

operations of the government, especially
its public services.

Can we consider TAXATION as a

foundation of Economic Growth?

Approaches to Equitable Taxation

Benefits received
- People pay their taxes in proportion to the
benefits that they received from government
programs/projects.

Ability to pay
Those who have more incomes and wealth have

to pay more taxes than those with less income

and wealth.

Negative Effect of Fiscal Policy

to:

Savings
Taxes =

Ability to save

Investments
Taxes = Investors

Prices ( money supply = inflation)

Government expenditure = money supply.

Employment.
If in case the government expenditures are
used for capital intensive projects, then
employment securities decline.

Consumption.
Taxes = level of consumption

Limitations of Fiscal
Policy

Self-interests and other human frailties influence

the formulation and implementation of fiscal
policies.

Fiscal policy suffers from various lags or delays in

the process of discussions of economic problems.
economic problem may have changed therefore
such fiscal policy is no longer the right solution.

Inefficient implementation, particularly the

administration of tax programs.

Coordination of Fiscal and

Monetary Policies

Since fiscal and monetary policy are

interdependent there is a need for their
close cooperation and coordination.

THANK YOU!