Fiscal Policy

1. Fiscal Policy
Karan Sahu

2. Fiscal Policy Meaning
• The word “Fisc” means
‘State Treasury’ and
fiscal policy refers to
policy concerning the
use of ‘state treasury’ or
the Government
finances to achieve the
macroeconomic goals.

3. Definition
• It refers to the revenue and expenditure policy of
the govt. which is generally used to cure
recession and maintain economic stability in the
country.
• It is the sister strategy to
monetary policy through which a central bank
influences a nation's money supply.

4. Rest of World
Households
Firms
G
Circular Flow Diagram
G
Total
Produced
National
Income
generated
from
production
National Income
- Taxes + Transfers
to
NX
I
pay
G
T
S
C

5. Objectives of Fiscal
Policy
Economic Growth
Employment
Generation
Stabilization
Economic equality
Balanced regional
development
Price stability

6. INSTRUMENTS OF
FISCAL POLICY
Government
Expenditure
Government
Revenue
Public Debt
Budgetary surplus
and deficit

7. Government Expenditure
It includes
• Government spending on purchase of goods and
services.
• Payment of wages and salaries of govt. servants.
• Public investment
• Transfer payments

8. Government Revenue- Taxation
Transfer of private income into public coffers
by means of Tax. It is classified in to :
1. Direct tax: Income tax, Wealth tax, Corporate
tax
2. Indirect tax: Excise duty, Customs duty,
VAT,CST

9. The following tax system is followed to
decide the tax rate :
• Progressive Tax
• Proportional Tax
• Regressive Tax

10. Public Debt
• Internal borrowings
• Borrowings from the public by means of treasury
bills and govt. bonds.
• Borrowings from the Central Bank
• External Borrowings
• Foreign investments
• Market borrowings
• International organization like World Bank &
IMF.

11. Budgetary surplus and deficit
• “A budget is a detailed plan of operations for
some specific future period”.
• It is an estimate prepared in advance of the
period to which it applies.
• It is also known as Annual Financial Statement
of the year.

12. Tools of Fiscal Policy
Tools of
Fiscal Policy
Public Revenue
Public
Expenditure
Revenue
Receipt
Capital
Receipt
Revenue
Expenditure
Capital
Expenditure
Tax Non- Tax
Direct Tax Indirect Tax

13. Public Expenditure (Payments)
Revenue Expenditure
 Interest Payments
 Major Subsidies
 Defense
Capital Expenditure
 Expense on administration
 Repayment of Loans
 Extension of fresh loans to
the state govt by the central
 Loans to public enterprise
 Expense on Irrigation
project
 Sectoral development

14. Public Revenue (Receipts)
Revenue Receipts
Tax
Non- Tax Receipts
Fines and Penalties
Fees
Profits of PSU
Govt Interest
Grants and Gifts
Capital Receipts
 Recovery of Govt loans
 Disinvestment of PSU
 Market Borrowings –
Internal and
International sources

15. Thank You
Be Good Do Good