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To mobilize resources.
To promote economic growth in the private sector.
To ensure price stability by restraining inflationary
forces.
To ensure equitable distribution of income and
wealth
Role Of Fiscal Policy
Discretionary
Non-Discretionary
policy
Policy
Personal Income
To cure Recession To Control Inflation
taxes
Corporate Dividend
policy
Discretionary Policy
45o
C+I2+G2
E2
E
X H
P C+I1+G1
E
N
D Deflationary Gap
I
T E1
U
Y= G 1
R Potential 1-MPC
E output
450
Y1 YF
NATIONAL INCOME
Non-Discretionary
■ Automatic stabilizer.
■ Personal Income:
✦ ProgressiveRate
✦ More income = more rate of Tax
■ Transfer Payments:
✦ Unemployed Compensation / Welfare benefits.
✦ Recession increases = Unemployment
increases.
Cont…
Keynesians theory
Large expansionary effect of national
income =
2. Government increases its
expenditure, without raising its taxes
3. When Government reduces taxes
without changing expenditure
INSTRUMENTS
■ Budget
■ Taxation
■ Public Expenditure
■ Government Borrowing
■ Deficit Financing
Budget
FRBMA
■ notified on July 2nd & came into force
on July 5th 2004.
■ Reduction of fiscal deficit & elimination
of revenue deficit by March 09
Budget
Provisions of FRBMA
■ Revenue deficit should be down by
0.5%
■ Fiscal deficit should be reduced by
0.3% every year and brought down to
3% by 07-08
■ The total liabilities of the Union Govt.
should not rise by more than 9%p.a
■ The Union Government shall not give
guarantee to loans raised by PSUs and
State governments for more than
0.5% of GDP in the aggregate;
TAXATION
(RE) (BE)
Internal debt (Total) 803698 913061 1020689 1141706 1275971 1355943 1522031