FISCAL POLICY

FISCAL POLICY
Fiscal Policy is concerned with raising funds
through taxation and other means.

It is estimate of government expenditure and

revenue for the ensuing financial year,
presented to parliament usually by the Finance
minister.
Fiscal Policy is divided into 3
categories:-
Union Budget
State Budget
Finances of Union and State Budget
UNION BUDGET

Constitution of India provides that:-
1. No tax can be levied except authority of law.

2. No fund can be incurred for public fund

except in a manner provided in the

constitution.
3. The executives authority must spend public

money sanctioned by Parliament.

Union Budget
Public account of

Consolidated fund

India
All revenues received Deposits
Loan raised Services funds &
Money received in remittances
repayment of loan by
union government
STRUCTURE OF BUDGET
Receipt

Disbursement


1.Revenue Receipt Revenue Expenditure

2.Capital receipt Capital Expenditure
STATE BUDGET
 Estimates of receipts and expenditure are
presented by state government to their
legislature before the beginning of financial
year.
Sources of Revenue for the
Union
Taxes on income other than agricultural
income.
Corporation taxes
Rate of stamp duty on bill of exchange.
Duties and customs.
Taxes on sales or purchase of newspapers.
Fees in respect of any matter in the union list.
Sources of Revenue for the
State
Taxes on agricultural income.
On lands & building
Advertisement
Tolls
Vehicles
Fisheries
Forests
Irrigation
Consumption on sales of Electricity
Benefits of Fiscal
Policy
Two benefits as a stabilization tool: its regional focus,
and the direct impact it has on spending
Regional Focus:
 Parts of Canada may be more affected than others by the
business cycle
 Discretionary fiscal policy can focus on particular regions
where, for example, unemployment rates are the highest
or inflation is at its worst
 Automatic stabilizers have the greatest effect in regions
that need them the most
Impact on Spending:
 Fiscal policy has a more straightforward impact when
altering government purchases than monetary policy,
since the government itself initiates the change

Drawbacks of Fiscal
Policy
 Delays:
 Recognition Lag – the amount of time it takes policy-makers
to realize that a policy is needed
 Decision Lag – the amount of time needed to formulate and
implement an appropriate policy
 Impact Lag – the amount of time between a policy’s
implementation and its having an effect on the economy
 Political Visibility:
 Voters are likely to respond more favourably to increases in
government purchases and cuts in taxes
 Public Debt:
 Public Debt- the total amount owed by the federal
government as a result of its past borrowing
 Public Debt Charges – are the amounts paid out each year
by the federal government to cover the interest charges on
its public debt

Fiscal Policy Guidelines
3 principles that guide government fiscal policy:
 1) Annually balanced budgets
 2) Cyclically balanced budgets
 3) Functional finance
Annually balanced budget is the principle that
government revenues and expenditures should
balanced each year
Critics of fiscal policy say annually balanced budget
are not necessary for the society and state it as
faulty reasoning
Cyclically balanced budget is the principle that
government revenues and expenditures should
balanced over the course of one business cycle

THAN
KS
 .