Objectives and Measures of Fiscal Policy
Fiscal policy is defined as the policy under which the government uses the instruments of taxation, public spending and public borrowings to achieve various objectives of economic policy. The objectives of fiscal policy are as follows:
Attaining External Equilibrium
Fiscal policy is used as a tool to curb inflation. During inflation, contractionary fiscal policy is being used to reduce aggregate demand and hence to control demand –pull inflation. Fiscal policy is an important tool to achieve economic stability. Deficit budget policy and reduction in tax rates are to be followed during depression. To create employment, the government should adopt expansionary fiscal policy. Raising the rate of economic growth with equity is the prime objective of fiscal policy. For economic development of developing country, the role played by fiscal policy is imperative. It is done through promotion of savings, balanced regional growth, control of inflation, reducing trade deficit, etc. The limitations of fiscal policy are: small size of fiscal measures (in developing country), it is ineffective as anti-cyclical measures and administrative delay.