Fiscal Policy Objectives

Fiscal Policy Objectives

Fiscal policy is a tool used by the Government to control national economy with the help of taxation and spending. Fiscal policy may be termed as intervention of the government in the national economy. Fiscal policy objective can be explained in terms of price stabilization, consumption pattern influencing, employment generation, income distribution and economic growth.

1.    Price Stabilization

Fiscal policy can control the price, for example if there is inflation in the market, then government may reduce the demand by increasing tax rate and reducing public expenditure.  The reduce demand will bring the prices down and inflation will be controlled.

2.    Change Consumption Pattern

Fiscal policy can change the consumption pattern, for example heavy taxes on tobacco can reduce the tobacco consumption, and similarly heavy taxes on luxury goods can also reduce the consumption on those goods.

3.    Employment Generation

Fiscal policy can generate employment especially when economy is not at full employment level. Government expenditure can create employment opportunities in many ways direct employment & indirect employment opportunities.

4.    Income Distribution Gap

Fiscal policy can play effective role for filling the income distribution gap. Government can impose heavy taxes on rich people and can spend that amount on social welfare; this will change the income structure in the economy.

5.    Economic Growth

Fiscal policy can play important role in achieving the economic growth targets set by the governments. Public expenditure can really boost the economic activity & growth in the country.