Concept of Fiscal Policy
A fiscal policy controls the government’s expenditures and receipts. It is the government’s budgetary policy. It operates through changes in government expenditures, taxation and public borrowing. A compensatory fiscal policy is when government expenditures and receipts are manipulated to achieve national objectives, such as high employment, price stability, economic growth, and balance of payments equilibrium.The government’s expenditures and revenues are used to produce desirable effects while avoiding negative effects on national income, employment, and production.
A government’s fiscal policy involves taxation, expenditures, and other financial operations to achieve certain national goals.The government uses this tool to regulate or modify the economic affairs of an economy.
The fiscal policy of a government includes measures of public expenditures, public revenues, and public debt or borrowing. Fiscal policy is concerned with the aggregate effect of government expenditure and taxation on income, production, and employment. An exercise where the government controls the public budget in order to achieve predetermined macroeconomic goals. Functional finance is an application of the principle of fiscal policy in the modern world. By adjusting the fiscal measures, inflation or deflation can be controlled, i.e. according to the changing conditions of the economy.Taxation and expenditure policies of a government, which together comprise its budget. Fiscal policy is government spending that influences macroeconomic conditions. The effect of these policies is to control the economy by influencing tax rates, interest rates, and spending.