Make your own free website on Tripod.com

Guide on How to Write University Essays, Courseworks, Assignments and Dissertations

Fiscal Policy, Budget Deficit and Government Debt

Home
Articles Library
Medicine, Psychology and Sociology Articles
Business Articles
Economics Articles
Industry Lifecycle
Marketing Mix
McKinsey 7S Framework
Product Life Cycle
Ansoff Analysis
BCG Growth-Share Matrix
Value Chain
Porter's Generic Strategies
Scenario Planning
PEST analysis
SWOT Analysis
Porter's 5 Forces analysis
Sitemap
Comments about this web site
Favorite Links
How to write an Essay
How to Write the Coursework or Report
How to write the Marketing or Marketing Communications Campaign
How to write the Dissertation
Where to start?
How to choose an area of research
How to define Issue or Argument
How to define Issue or Argument
How and where to review the literature
Research Methods
Dissertation Structure
Some tips to survive your dissertation: some predictable crisis
Important tips to succeed the dissertation
Databases of Academic Journals and Publications; Market Data
Essay Sites
Student Tricks
Exam Preparation Tips
Company-Based Reports
BALANCED SCORECARD
Critical Success Factors
Competitor Analysis
Review

Fiscal policy refers to the government use of the budget to affect economic activity, allocation of resources and the distribution of income (wikipedia 2007 [online]).  The government uses fiscal policy and its sister instrument, the monetary policy, in various combinations so as to give direction to a countries economic goals. The fiscal policy is attributed to the theories of John Maynard Keynes who postulated that government can influence macroeconomic productivity level by playing around with tax levels and government spending, (the fiscal policy). Development may not be achieved in the absence of a supporting macroeconomic framework consisting of monetary and fiscal policies (wider.unu.edu [online]).  Macroeconomic policy has to show dynamism to deal with eventualities, such as the decrease in price of a major export commodity, so that investors will have confidence that the government will keep its word on fiscal policy discipline. The task for policy makers is to obtain the right mix of fiscal policy for the best results. Government may spend money for the public good. It usually spends the money to provide services that would not be best served by the private sector, or where the distribution of resources would not be socially acceptable. This includes spending money on the Police, teachers, the military and so on.

 

Government can raise funds for the aforementioned activities mainly through taxation, a major component of fiscal policy (investopedia 2007 [online]).   A less desirable way of raising money is called inflationary tax, where government simply prints money and spends it. The problem with this method is that it creates inflationary tendencies which tend to hit the poor the most. The other way to finance government budget is borrowing from the population which results in budget deficit. The fiscal policy deficit is usually through government bonds. When the government borrows, it incurs the debt on behalf of the taxpayers. That debt is what is called government debt, or public/national debt. If the debt was incurred by borrowing internally, then that would be called internal debt. Money borrowed from multilateral/bilateral lenders or international finance markets constitute the external debt.

 

A good fiscal policy should be neither too restrictive as to discourage private investment and stall growth, nor should it be too relaxed as to create high inflation and crowd out private investment. Fiscal policy is usually central to the state’s role in its development agenda and miscalculations on this front may undermine growth (wider.unu.edu [online]). Weak fiscal policy may also be a recipe for social unrest especially when one group in the wider population feels they are being treated unfairly. For the poor countries, aid and debt relief cannot work without a good fiscal policy system

 

Good fiscal policy system on the other hand can help boost economic growth through prudent public investments (wider.unu.edu [online]).  Growth in turn increases the tax base which can result in higher government revenues that can be used for specific government objectives like the alleviation of poverty. And where the resource allocation in the past has been objectionable, fiscal policy reform can be a tool for correcting injustices. Bluntly put, fiscal policy is more about the political priorities that has captured the imagination of the government of the day more than other policy making roles.

 

 

References

 

1. URL http://en.wikipedia.org/wiki/ Fiscal_policy. . Last accessed 27 October 2007.

 

2.URL http://64.233.169.104/search?q=cache:KJ9AE3WXmcAJ: www.wider.unu.edu/publications/ policy-brief/fiscal-policy-pb-5-2006-online.pdf +understanding+fiscal+policy&hl=en&ct= clnk&cd=9&gl=ke.  Last accessed 28 October 2007.

 

3. URL http://www.investopedia.com/ articles/04/051904.asp.

. Last accessed 28 October 2007.

C/E/173. Budgetary Systems: incremental budgets, zero-based budgets, capital budgets and production budgets

C/E/175. Economic theory and market models

E/E/69. Does a debt-financed tax cut affect the economy? Should wars be financed through debt or taxes? What is the difference between the budget deficit and the cyclically adjusted budget deficit?

C/E/139. UK Budget 2006-2007 – Successful or Unsuccessful

C/E/134. The Financial Headache facing students today in the UK

S/E/75. Top-Up Students Fees: Solution of the UK Government

E/E/34. Role of fiscal and monetary policies in economic growth

P/E/510. Fiscal policy of UK

P/E/507. Stabilisation policy in UK

P/E/405. Influences of fiscal policy on inflation and unemployment

P/E/381. Tax policy of Labour Government

P/E/350. Critique of Ricardian equivalence

P/E/343. Green tax to control environmental pollution: pluses and minuses

C/E/96. The Use of fiscal policy on inflationary and deflationary gaps. Why do governments prefer to use fiscal policy?

P/E/249. UK fiscal and monetary policy

C/E/78. UK Fiscal policy: effects of golden and investment rules

C/F/72. Tax Credit

P/E/196. Investigation into the effectiveness of Emission tax on pollution

S/E/39. The solution for the budget deficit of British government

P/E/102. Dissertation. China: Monetary and Fiscal Reforms

P/E/97. Is Budget an Effective Tool for Redistribution?

P/E/93. How Corruption affects the Size and Composition of Government Expenditure?

P/F/115. Impact of E-Commerce on Government Revenues

P/E/49. Analysis of the U.S. Current Account Deficit: Implications for the U.S. Economy

Enter supporting content here