fiscal policy in a developing country 2014
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FISCAL POLICY IN ADEVELOPING COUNTRY
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Economic policyEconomic policyrefers to the actions thatgovernmentstake in the economic field
Economic policy consists of :-
fiscal policies , andmonetary policies .
http://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Government -
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WHAT IS FISCAL POLICY ?It is the means by which a governmentadjustit level
of spending in order to monitor and influence a
nations economy
A government's program with respect to
(1) the purchase of goods and services and spending on
transfer payments, and
(2) the amount and type of taes!
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Objective of Fisc! Po!ic"Mobilization and efficie#t !!octio# of
$eso%$ces
Minimization of i#e&%!ities of i#co'e #(
)e!t*
Increasing e'+!o"'e#t o++o$t%#ities
Increasing o%t+%tand accelerating economic
growth
Eco#o'ic stbi!it"
P$ice stbi!it"
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T"+es of Fisc! Po!ic" ,-
1 Contractionary fiscal policy :It is a government policy of reducing government expenditure or
spending (G ) and raising taxes(T ). A reduction in G reduces the
AD and the output directly, while higher taxes force the household
and consumers to pay larger proportion of their income towards
taxes which reduces disposable income and expenditure.
Thus, contractionary fiscal policy reduces the output, employment
and inflation rate in an economy.
Such policies are pursued to stabilize a booming economy,experiencing a high growth rate of output but also a highrate of inflation.
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2 Expansionary fiscal policy :It happens when the fiscal balance is in deficit (i.e.,government spending increases (G ) and government earning
through tax reduces (T ) ) and the extent of deficit is increasing
or the extent of surplus is decreasing compared to previous period
.Such policy effect AD to increase and consequently raise the
overall price level and inflation rate and boost up the output,
income and employment level in an economy
Such policies are pursued by the government in anrecessionary economy representing by negative growth rateof output, deflation and high level of unemployment.
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How Fiscal Policy work ?
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INSTRUMENTSOF FISCA
!OIC"
!U#ICRE$ENUE
!U#ICE%!EN&ITURE
INSTRUMENTS OF FISCAL POLICY
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GOVT OWNRECEIPT
REVENUERECEIPTS
TA.REVENUE
DIRECT INDIRECT
NON-TA.REVENUE
CO//ERCIAL
E01 Lo#s2fo$ei0# i(s
etc1
AD/INISTRATIVEE01 Fees fo$0$#ti#0 o$iss%#ce of+e$'its #(
!ice#ce
CAPITALRECEIPTS
PU3LICSECTOR
DISINVEST/E
NT PROCEEDSE01 Cs* f$o' se!!
of fi4e( sset
RECOVERYOF LOANS
GRANTS
PUBLIC REVENUE
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/jo$ co'+o#e#ts of Ce#t$! Gove$#'e#tRecei+ts
Tot! $ecei+ts5 Reve#%e Recei+ts 6 C+it! Recei+ts
78 Reve#%e $ecei+ts,
I8T4 Reve#%e
A' &irect Ta(
i' !ersonal Income Ta(
ii' Cor)oration Ta(
#' Indirect Ta(
i' e(cise d*t+
ii' c*stoms d*ties
II8 No#-T4 Reve#%e
A' Interest Recei)ts
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98 C+it! $ecei+ts,
A' Mar,et borrowings -net'
#' Small sa.ings
C' !ro.ident f*nds
&' S)ecial de)osits
E' Reco.er+ of loans
F' &isin.estment recei)ts
/' E(ternal loans -net'
According to R#I0
Total Recei)t of Central /o.ernment in 1234536is7
Re.en*e recei)t 75 Rs32894:43 #illion
Ca)ital Recei)t75 Rs 92;
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CATEGORIES
REVENUEACCOUNT
E.PENDITURE
CAPITALACCOUNT
E.PENDITURE
TRANSFERE.PENDITURE
NONTRANSFER
E.PENDITURE
PLANE.PENDITURE
NON-PLANE.PENDITUR
E
FUNCTIONALCLASSIFICATION
ECONO/ICCLASSIFICATION
PRODUCTIVEE.PENDITURE
UNPRODUCTIVE
E.PENDITURE
PUBLIC EXPENDITURE
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/jo$ co'+o#e#ts of Ce#t$! Gove$#'e#tE4+e#(it%$e
Tot! e4+e#(it%$e5
Reve#%e e4+e#(it%$e6 C+it! E4+e#(it%$e #( o*e$
78 Reve#%e E4+e#(it%$e
A' &efence e()endit*re
#' Interest )a+ments
C' S*bsidies
98 C+it! e4+e#(it%$e
A' oans and ad.ances
#' Ca)ital o*tla+
i' &efence e()endit*re
According to R#I0
Total E()endit*re of Central /o.ernment in 1234536 is7
Re.en*e E()endit*re 75 Rs36493:9< #illion
Ca)ital E()endit*re75 Rs 11
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Thus,
/ross recei)ts incl*des re.en*e recei)ts and
disin.estments> Rs 33313:68 #illion
/ross e()endit*re incl*des re.en*e e()endit*re0ca)ital o*tla+ and loans and ad.ances net ofreco.eries > Rs 39869:66 #illion
Therefore0
Fisc! (eficit e4+e#(it%$e @ $eve#%e8 i# 97B-7 isRs ;91
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