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MBA 1st Year Fiscal Policy Study Material Notes

MBA 1st Year Fiscal Policy Study Material Notes

MBA 1st Year Fiscal Policy Study Material Notes

MBA 1st Year Fiscal Policy Study Material Notes: In this post, we will learn about MBA 1st Year Fiscal Policy Study Material Notes. In MBA 1st Year there is one of the most important questions comes from Economic Political Legal Environment. You will learn about MBA 1st Year Fiscal Policy Study Material Notes. M.Com is a process of development.

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MBA 1st Year Fiscal Policy Study Material Notes
MBA 1st Year Fiscal Policy Study Material Notes

Fiscal Policy

Fiscal policy is considered to be an into financial operations of the government on the various aspects regarding the functional national economy, such as prices, empire “economy, such as prices, employment, consumption, production, distribution of It is also called the budgetary policy”. In sim Card budgetary policy.

In simple words, it embraces the tax and expenditure policy. Economists have defined the fiscal policy as a policy of government where options of raising revenue and incurring expenditure to produce desirable effects and avoid und effects on various aspects of the economy like national income, product income, production, and employment.

Economists have defined the fiscal policy as follows:

Fiscal policy means public expenditure and tax policy

A policy under which the government uses expenditure and revenue programmes to desirable effects and avoid undesirable effects on the national income, production, and employment. (MBA 1st Year Fiscal Policy Study Material Notes)

Objectives of Fiscal Policy

The main objectives of fiscal policy are as follows:

  1. Effective mobilization of resources for development.
  2. Taxation and public savings.
  3. Effective allocation of financial resources.
  4. Controlling the deficit in the balance of payment
  5. Reducing inequalities of income and wealth.
  6. Price stability and inflation control.
  7. Employment generation.
  8. Increasing the capital formation rate.
  9. Ensuring a balanced regional development.
  10. Increasing the national income of the country.

Instruments of Fiscal Policy: There are three main instruments of fiscal policy, i.e. taxation, public borrowing, and deficit financing which must be used in a harmonious combination so as to produce the best overall effect in realizing the macro-economic goals.

  1. Taxation: A sound taxation policy should be made for:

(a) Curtailing consumption and thus garnering resources for public sector investment.

(b) Reshaping the pattern of investment in a socially desirable manner. Transfer of scarce resources from the unproductive private sector to the productive public sector. (MBA 1st Year Fiscal Policy Study Material Notes)

(c) Inducing people to work hard, save and invest in production.

(d) Reducing inequalities in income and wealth.

  1. Public Borrowing: Public borrowing also plays an important role in mobilizing savings. It is a non-inflationary method of financing government programmes as public debts divert savings of the people to government securities which are less liquid assets. They tend to curb consumption and relieve inflationary pressure.
  2. Deficit Financing: It is the financing of a gap between public revenue and public expenditure. I have done this through public borrowing or a type that results in a net addition to national outlay or aggregate expenditure. In short, it implies the creation of an additional money supply. (MBA 1st Year Fiscal Policy Study Material Notes)

A country resorting to planes for development finds it easier to obtain additional resources for the plan through deficit financing In India, deficit financing constitutes an important resource for obtaining finance for five-year plans. When required, the public expenditure exceeds public revenue collected through taxation borrowings, public sector profits, foreign deeds, etc. restoring deeds, etc. resorting to deficit financing that becomes necessary to come at par with required expenditure.

Significance of Fiscal Policy

The significance of fiscal policy may be understood with the help of the following factors:

  1. Full Employment: In the matter of canons of fiscal policy, Keynes has laid down some fundamentals. According to him, Public finance is compensatory finance ordained to attain and maintain  full employment in the economy To pursue this goal, he suggested that:

(a) Taxation should be devised to promote and sustain consumption and investment.

(b) To raise the level of effective demand and to overcome depressionary forces resort to deficit financing.

(c) Public expenditure should finance public works programmes and provide social security. towards the creation of more employment.

(d) Direct tax rates should be low so as to encourage savings and investments that are directed.

(e) Public expenditure must uplift the aggregate demand, investment, and employment.

(f) Public borrowing should finance productive public expenditure.

  1. Economic Stabilisation: Fiscal policy should aim at relative price stabilization, control of inflation, and avoidance of deflation. Forces stimulating the growth process should be given a boost at a time while inflationary pressures are to be curbed.
    In a growing economy when huge investment is undertaken to implement infrastructural projects, returns are not immediate, as such scarcity of consumption goods is felt. This results in a rise in prices and wages and cost-push inflation are provoked. This vicious circle of inflation has to be checked through appropriate fiscal policy.
  2. Economic Growth: Appropriate fiscal policy encourages the growth process, which has the following objectives: 

(a) Fiscal policy should aim at improving the marginal propensity of savings and the consequent incremental saving ratio.

(b) To accelerate the rate of economic growth, fiscal policy should not adversely affect the ability and willingness to work hard, save more and invest. (MBA 1st Year Fiscal Policy Study Material Notes)

(C) To induce the stimulation of private sector investment.

(d) To promote investment into socially desirable channels.

(e) To alter the pattern of investment and production is an important instrument to ensure improvement in the economic welfare of the general public, through which government interferes in a country’s equity in the distribution and eradication of poverty.

  1. Social Justice: Fiscal policy should aim at social justice by giving the equitable distribution of income and wealth. A progressive tax system and re-distribution of income through public expenditure by growing allocation for programmes like free medical care, free education, subsidized housing, subsidized essential commodities like milk, etc. should be the objectives of fiscal policy.

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