(Sample Material) IAS PRE GS Online Coaching : Economic & Social Development - Fiscal System

Subject: Economic & Social Development
Topic: Fiscal System

Fiscal Policy

Definitions

• That part of government policy which is concerned with raising revenue through taxation and with deciding on the amounts and purposes of government spending.
• The government’s policy in regard to taxation and spending programs. The balance between these two areas determines the amount of money the government will withdraw from or feed into the economy, which can counter economic peaks and slumps.
• Government spending policies that influence macroeconomic conditions. These policies affect tax rates and government spending, in an effort to control the economy.
• government policy for dealing with the budget-especially with taxation and borrowing
• The policy of a government in controlling its own expenditures and taxation, which together make up the budget
• Fiscal policy is the means by which a government adjusts its levels of revenue and spending in order to monitor and influence a nation’s economy.

Ques. 1 : What is Fiscal Policy?

Ans. Fiscal policy involves use of taxation and government spending to influence economy. In other words, fiscal policy relates to raising and spending money in quantitative and qualitative terms.
As far as fiscal receipts are concerned, taxes, user charges (power, water, transport charges etc); disinvestment proceeds; borrowings from internal and external sources are the main channels. All receipts are not earned and some are borrowed. Receipts and expenditure are divided into revenue and capital accounts. Expenditure is also shown as Plan and Non-plan items.

Fiscal system deals not only with the quantity but the quality of public finance as well. In other words, not merely how much is raised and spent but how has it been raised- is it raised by way of taxes or borrowings; are they excessive or irrational etc. Also, the way the finances so raised are used wastefully or productively. How much is spent on plan heads and how much populistically targeted etc also is studied.

Fiscal policy can achieve important public policy goals like growth; equity; promotion of small scale industries; encouragement to agriculture; location of industries in rural areas; labour-intensive growth; export promotion; development of sound social and physical infrastructure etc.