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Fiscal Policy and Its Objectives

Fiscal policy uses taxation and government spending to achieve economic and social objectives. These objectives include increasing savings, encouraging investment, and achieving an equal distribution of wealth. Fiscal policy also aims to control inflation, reduce regional disparities, stabilize price levels, increase agricultural and industrial output, attain welfare for citizens, check rapid increases in consumption, and achieve overall economic stability.

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Samad Raza Khan
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2K views2 pages

Fiscal Policy and Its Objectives

Fiscal policy uses taxation and government spending to achieve economic and social objectives. These objectives include increasing savings, encouraging investment, and achieving an equal distribution of wealth. Fiscal policy also aims to control inflation, reduce regional disparities, stabilize price levels, increase agricultural and industrial output, attain welfare for citizens, check rapid increases in consumption, and achieve overall economic stability.

Uploaded by

Samad Raza Khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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FISCAL POLICY AND ITS OBJECTIVES

FISCAL POLICY is the process of shaping government taxation and expenditure


to achieve desired economic and social objectives. Objectives of fiscal policy
modify with economic development.

Objectives of Fiscal Policy

1. INCREASE IN SAVINGS:
Fiscal policy provides incentives for savings in developing countries by
taxing the rich people and providing assistance to the poor.

2. TO ENCOURAGE INVESTMENT:
Government can encourage investment by generating various incentives
through its tax policy. The capital can be shifted from the less productive
sectors to more productive ones in order to optimally utilize resources of the
country.

3. TO ACHIEVE EQUAL DISTRIBUTION OF WEALTH:


Fiscal policy is significant in equal distribution of wealth. This is very
important to ensure increased purchasing power amongst various classes of
the society which results in high level of employment and production.

4. TO CONTROL INFLATION:
Fiscal policy is instrumental in controlling inflation. Either by reducing
expenditures on non-productive projects or by increasing tax rate which
reduces purchasing power and effective demand.

5. TO REDUCE REGIONAL DISPARITY:


Instruments of fiscal policy are used by governments in an attempt to reduce
regional disparities in developing countries. This objective could be
achieved either by providing tax holiday in sectors useful in increasing per
capita income or by developing infrastructure and spending in development
projects.
6. STABILIZATION OF PRICE LEVEL:
Fiscal policy is also used to achieve desirable level of prices in the country
in order to increase production and employment levels.

7. INCREASE IN AGRICULTURAL AND INDUSTRIAL OUTPUT:


Fiscal policy aims at increasing the output of various sectors in order to meet
internal and external demand.

8. TO ATTAIN WELFARE OF THE PEOPLE:


Main objective of fiscal policy is to achieve maximum welfare of the people.
Hence their standard of living is increased.

9. TO CHECK RAPID INCREASE IN CONSUMPTION:


Fiscal policy also checks the rapid increase in the consumption, as this could
lead to desired rates of savings hence lowering the rate of investment.
Economic conditions cannot be improved unless investment is increased.

10.TO ACHIEVE ECONOMIC STABILITY:


The aim of fiscal policy is to increase the rate of production and employment
without inflation. Hence economic stability is sought by all countries.

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