Owing to acute poverty, the marginal propensity to consume is very high in developing economies. In short, fiscal measures as well as monetary measures go side by side to achieve the objectives of economic growth and stability. Therefore, fiscal policy plays a leading role in maintaining economic stability in the face of internal and external forces. Tripathi suggests the following steps to raise the saving ratio which provides the required finance for developmental schemes: (ii) Increasing the rate of existing taxes. Public expenditure, subsidies and incentives can favorably influence the allocation of resources in the desired channels. Generally following are the objectives of a fiscal policy in a developing economy: 3. Above all, direct curtailment of consumption and socially unproductive investment may be helpful in mobilization of resources and the further check of the inflationary trends in the economy. Privacy Policy 8. The objective of fiscal policy is to maintain the condition of full employment, economic stability and to stabilize the rate of growth. On the contrary, high taxation may draw away resources in a specific sector. It should promote the economy as a whole which in turn helps to raise national income and per capita income. The purpose of the paper is to examine the effect of fiscal policy variables on economic growth in South Africa. There is no doubt that the Government bud­getary or fiscal policy must be sound, keeping in view the needs and requirements of a developing economy. Fiscal policy must be designed to be performed in two ways-by expanding investment in public and private enterprises and by diverting resources from socially less desirable to more desirable investment channels. Underdeveloped countries are encompassed by vicious circle of poverty on account of capital deficiency; in order to break this vicious circle, a balanced growth is needed. These expenditures would help to create more employment opportunities and increase the productive efficiency of the economy. Tax policy is … Content Guidelines 2. BIN 3020 7 Objective 4: To identify how fiscal policy will be improving people’s life in China. There is a general agreement that economic growth and stability are joint objectives for underdeveloped countries. There are several peculiar characteristics of a developing country which necessitate the adop­tion of a special fiscal policy which ensures a rapid economic growth. Macroeconomics : Fiscal Policy and Budget Deficit: Chapter 15 Fiscal policy means government's plan for expenditure, revenues and borrowing to finance fiscal deficits. Share Your PPT File. 32. The price rise generated by demand pull reinforced by cost push inflation leads to further widening the gap. As a result the level of saving is very low in these economies. Desirable levels of prices: – The desirable level of prices can be achieved with the change in rate of taxes. Objectives of Fiscal Policy in a Developing Economy (1) Mobilization of Resources. Therefore, fiscal policy must be designed to be performed in two ways-by expanding investment in public and private enterprises and by diverting resources from socially less desirable to more desirable investment channels. To promote economic growth in the private sector by providing incentives to save and invest; 3. A properly planned investment will not only expand income, output and employment but will also step up effective demand through multiplier process and the economy will march automatically towards full employment. Our mission is to provide an online platform to help students to discuss anything and everything about Economics. In order to gear the economy, the government can push the growth of social infrastructure through fiscal measures. Share Your PDF File Plagiarism Prevention 4. The papers carry the names of the authors and should be cited accordingly. Price Stability: There is a general agreement that economic growth and stability are joint objectives … For attaining these objectives the study used data from 1990 to 2014. In nut shell, fiscal policy should be viewed from a larger perspective keeping in view the balanced growth of various sectors of the economy. For this, suitable fiscal policy of the government can be devised to bridge the gap between the incomes of the different sections of the society. Before publishing your Articles on this site, please read the following pages: 1. Content Guidelines 2. For an under-developed economy, the main purpose of fiscal policy is to accelerate the rate of capital formation and investment. Fiscal policy aims at the acceleration of the rate of investment in the public as well as in private sectors of the economy. This item is … As a result of rise in income, aggregate demand exceeds aggregate supply. Before publishing your articles on this site, please read the following pages: 1. Their population is increasing at an explosive rate which necessitates rapid economic development to meet the requirements of the rapidly growing population. In most developing countries, an effective fiscal policy is: A. easier to conduct than in developed economies because there are fewer institutional checks and balances. Fiscal policy is the use of government revenue collection (mainly taxes) and expenditure (spending) to influence the economy fiscal policy deals with taxation and government spending and is often administered by an executive under laws of a legislature. The principle objectives of fiscal policy in a developing economy are as under: To mobilise resources for financing development; To promote economic growth in the private sector; To control inflationary pressure in the economy Image Guidelines 5. Welcome to EconomicsDiscussion.net! The rise in prices raises demand for more wages. During the period of recession, government should undertake public works programmes through deficit financing. There are vast and diverse resources, human and material, which are lying underutilised. Generally, inequality in wealth persists in such countries as in the early stages of growth, it concentrates in few hands. Accelerating the rate of economic development, 5. The fiscal deficit management adopted in developing countries including Nigeria have been effective in solving the country’s current account deficit problem. Disclaimer 9. Therefore, redistributive expenditure should help economic development and economic development should help redistribution. 1.6 Research hypothesis Hypothesis 1: There is a positive impact on the fiscal policies used in the Chinese economy. This further gives rise to repeated wage-price spirals. In a developing country, economic instability is manifested in the form of inflation. 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