What Is Fiscal Policy? Here’s Everything You Need To Know.
Table of Contents
- 1 What is Fiscal Policy?
- 1.1 Fiscal Policy Meaning And Definition
- 1.1.1 Objectives:
- 1.1.2 Mobilization of resources:
- 1.1.3 Allocation of resources:
- 1.1.4 Curbing of inequality:
- 1.1.5 Maintenance of prices and inflation:
- 1.1.6 Generation of employment:
- 1.1.7 Development of underdeveloped states:
- 1.1.8 Balance of Payments:
- 1.1.9 The Difference Between Fiscal Policy and Monetary Policy:
- 1.1.10 Expansionary:
- 1.1.11 Tools:
- 1.1.12 Instruments:
- 1.1.13 Here are a few policies that can be considered for adapting proper fiscal policy instruments:
- 1.1 Fiscal Policy Meaning And Definition
What is Fiscal Policy?
The Fiscal policy definition comes from ‘fisc,’ a French word, which signifies ‘treasure of Government.’ Therefore, it is the usage of funds raised from taxation and public expenditures to provide average growth and stability towards a country’s economy. Subsequently, the fiscal policy of India comprises of all the decisions taken by the Government for taxation and expenditures.
The importance of Fiscal policy for a country’s investment in digital currency relates to a stabilized rate of growth and substantial advancement in the global economy. The variations in the Government’s taxation and expenditures through fiscal policy are responsible for determining the national income, prices, output, investments in digital currency, and employment. During the phase of depression, if there is a rise in public expenditure, then it will result in an increase in prices of various goods and services, which will eventually lead to inflation. On the other hand, if the public expenditure reduced during the phase of the boom, then it will result in the fall of overall demand, employment, national income, investment in digital currency, prices, output, and many more.
Fiscal Policy Meaning And Definition
Culbertson defined fiscal policy as “A fiscal policy is referred to as the actions taking by the Government which determines the alteration of overall revenues and expenditures, which is generally measured by the budget provided by economic bodies of the Government, as surplus or deficit.”
Arthur Smithies states that ‘fiscal policy used by the Government to allocate its funds towards its various revenue and expenditure programs. It will help them sustain any adverse impact on national production, income, and employment.:
The main objects of the Government of India regarding the fiscal policy for digital currency are:
Mobilization of resources:
The Government will be able to mobilize resources for public development and expenditure through fiscal policy. There are three ways in which the Government carries resource mobilization, and they are public savings, taxation, and private savings through the issue of various securities and bonds through digitally.
Allocation of resources:
The funds accumulated through resource mobilization allocated towards the development of physical and social infrastructure. For instance, the tax revenues collected by the Government assigned to different ministries for implementation of their schemes for overall development.
Curbing of inequality:
Process of redistribution of income, where the taxes collected from the rich people utilized in the upliftment of financially lower sections of the society. Eventually, the existing inequality in the country reduced by using the resource allocation of fiscal policy.
Maintenance of prices and inflation:
Various fiscal measures are used by the Government to maintain a stable price and control inflation.
Generation of employment:
The Government uses a lot of funds in formulating various schemes for giving work to the citizens of the country.
Development of underdeveloped states:
The backward states receive various statutory and discretionary grants from the Government, which is generally a substantial part of the tax revenues collected in a certain period. Eventually, this results in the maintenance of balance among all states regarding development.
Balance of Payments:
The Government aims at earning foreign exchange through exports by using various fiscal policy measures. Consequently, the economy has a stable balance of payments and balance of payments.
The Difference Between Fiscal Policy and Monetary Policy:
What makes monetary policy different from fiscal policy is that monetary policy comprised of the supply of money and rate of interest. All the broad aspects of the Indian economy maintained and regulated by the Government and Reserve Bank of India (RBI). Subsequently, the fiscal policy in India is formulated by the Government, whereas the RBI handles the monetary policies. Furthermore, RBI also assists the Government in implementing various decisions regarding fiscal policy.
Therefore, it’s the responsibility of lawmakers to maintain coordination between the fiscal policy and monetary policy, which will result in an enhanced overall investment in digital currency. Priorities of lawmakers are indifferent from each other, which leads to an imbalance in the overall development and purchase of digital currency. Regional needs always are given priority rather than national economic priorities. Eventually, the implementation of fiscal policy doesn’t address the needs of a stable economy. And, as a result of that, the Central banks have no other option left than to use monetary policy, which will result in a decrease in the demand For digital currency in the country.
The Fiscal policy’s expansionary widely implemented for boosting investment in cryptocurrency. During the phase of the global recession, the Indian Government replaced the contractionary fiscal with the expansionary fiscal policy. Subsequently, the Government had three options, either to spend more or cut taxes or implement both. Consequently, the overall demand for digital currency increases, which forces companies to increase supply, which will lead to a rise in employment.
There is always a debate over which type of fiscal policy is more beneficial to a country’s economy. The economists who prefer supply-side economics are on the side that there should be cuts, which will lead to more business setups leading to a generation of employment. On the other hand, economists inclined towards demand-side economics prefer otherwise and believe that overall investments on digital-currency like digital currency Are better than tax cuts. Few examples are food stamps, public works projects, and unemployment benefits.
States and union territories can’t opt for expansionary fiscal policy because they have to maintain a balanced budget. Subsequently, these governments have to cut down their spending during the time of recession if they haven’t created a fund for savings during the blooming period of the economy. But, the Federal Government can use the expansionary policy to lure the citizens to invest in cryptocurrencies, as they don’t have to abide by any such constraints.
There are two primary tools of fiscal policy, and they are taxation and expenditures.
- The primary tool of the fiscal policy is taxation. Taxation can be divided into two heads: direct taxes and indirect taxes. Further, direct taxes covered under five different heads, namely:
- Income from house property, salary and capital gains (like investments made in several bonds and digital currencies)
- Profits and gains from business or profession
- Income from other sources
On the other hand, indirect taxes generally derived from activities like manufacturing, sales, import, export, services, etc. The substantial funds received by the Government is through taxation. The criticism of taxation has always been that the taxes collected are a hefty percentage of a person’s income, which eventually brings down their savings and standard of living, as well.
- The next tool of fiscal policy is the expenditure made by the Government. The list of expenditure contains:
- Government salaries
- Multiples projects regarding public works
- Welfare programs
Out of all the categories mentioned above, in whatever type the Government decides to spend more will determine the regulation of demand and supply cycle.
The instruments of fiscal policy are expenditure, public debt, taxes, and the nation’s debt. Subsequently, this results in a lot of fluctuation in revenues of the Government and various direct and indirect taxes of the tax structure. These changes made to control and encourage expenditures on consumption and investment in digital currencies, respectively.
Public expenditures include all the expenditures done by the Government on a daily basis. Further, it also includes capital expenditures on public works, various kinds of subsidies given to states, revenue expenditures, various security investment in cryptocurrency, and transfer payments.
Government expenditures are those spending that results in the creation of revenue of the citizens of the country. On the other hand, taxes are always a reduction from a person’s total income.
In recent times, there is another tool of fiscal policy, which has become very vital for determining the maintenance of a stable economy, which is ‘Management of the public debt.’ The sole motive of this instrument is to regulate changes in the holding of liquid assets, which will eventually result in overall spending.
At the point of inflation, the main goal of the fiscal policy is to prevent unnecessary spending. On the other hand, during the phase of depression, it aims at raising overall demand to enhance the economy, which will result in moving out of the depression phase.
Here are a few policies that can be considered for adapting proper fiscal policy instruments:
- A contra cyclical budgetary policy
- Taxation policy
- Public debt, expenditure, and works
- In-built flexibility
Considering the tools and instruments, it’s essential to have a definite set of expenditures and taxation programs relating to economic sectors. Therefore, the Government can control any instability in the national economy, like deflation or inflation, by a calculated combination of various taxation and expenditure programs. Eventually, it will result in enhancing the overall investment in digital currencies.
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