Fiscal Policy And Budget At A Glance


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implications of fiscal policy and central budgets on an economy

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Fiscal Policy And Budget At A Glance

  1. 1. Too often in recent history liberal government have been wrecked on rocks of loose fiscal policy. - Franklin D Roosevelt
  2. 2. FISCAL POLICY AND BUDGET AT A GLANCE Presented by Group 6
  3. 3. Contents <ul><li>Public Finance as Over the Years </li></ul><ul><li>Public Finance, Keynes and Beyond </li></ul><ul><li>Issues Related to Aggregate Demand </li></ul><ul><li>Instruments of Fiscal Policy </li></ul><ul><ul><li>Instruments of Policy in Inflation </li></ul></ul><ul><ul><li>Crowding Out Effect (Recession) </li></ul></ul><ul><ul><li>Instruments of Fiscal Policy to Cure Recession </li></ul></ul><ul><ul><li>The Essence of Taxation </li></ul></ul><ul><ul><li>Government Expenditure </li></ul></ul><ul><ul><li>Measures of Deficit </li></ul></ul><ul><ul><li>India’s Fiscal Deficit </li></ul></ul><ul><li>Budget at a Glance </li></ul><ul><li>Dream Budget </li></ul>
  4. 4. Public Finance As Over the Years <ul><li>A balanced budget </li></ul><ul><li>Public debt considered a burden </li></ul><ul><li>Everything true of an individual or family is also true of government </li></ul><ul><li>Equal tax collection </li></ul><ul><li>Policy of laissez-faire </li></ul>Adam Smith Alfred Marshall David Ricardo Thomas Malthus J B Say Irving Fisher
  5. 5. Public Finance, Keynes and Beyond <ul><li>The Great Depression </li></ul><ul><li>Government Intervention </li></ul><ul><li>Focus on Aggregate Demand </li></ul><ul><li>Emerging importance of the Fiscal Policy </li></ul>
  6. 6. Issues Related to Aggregate Demand Y O X Y1 Y2 Δ Y E G H R C + I C + I + G Z 45⁰ Slope is equal to MPC National Income C, I, G Multiplier = 1 1- MPC
  7. 7. INSTRUMENTS OF FISCAL POLICY <ul><li>Government Expenditure </li></ul><ul><li>Taxation </li></ul>
  8. 8. Instruments of Fiscal Policy in Inflation Y O X Y F Y 2 Δ Y E Inflationary Gap H C + I + G 1 # C + I + G 2 Z 45⁰ Expenditure (C, I, G) National Income J C + I + G 1 Y 1 # Δ Y = Δ G* 1 [1– MPC*(1-t)] Δ G
  9. 9. Crowding Out Effect (Recession) E3 E2 E1  I Y 2 Y 1 Y F 45  C+I 1 +G 2 C+I 2 +G 2 C+I 1 +G 1 45  C + I + G Y O X National Income Interest I 2 I 1 r 1 r 2 O Y X  I I I Investment
  10. 10. Instruments of Fiscal Policy to Cure Recession Y O X Y 1 Y F Δ Y E 1 Δ G H R C + I 1 + G 1 C + I 1 + G 2 45⁰ 45⁰ Expenditure GNP Gap Deflationary Gap National Income Δ Y = Δ G* 1 1 - MPC Y O X M s 1 M s 2 E 1 E 2 M d 1 M d 2 r Rate of interest Quantity of money
  11. 11. The Essence of Taxation T/ Y Y Income O % of income paid in taxes Progressive Proportional Regressive The Laffer Curve Tax Rate Tax Revenues R2 R1 50% 60% Maximum Tax Revenues
  12. 12. Government Expenditure
  13. 13. Measures of Deficit <ul><li>Revenue Deficit = Expenditure – Receipts </li></ul><ul><li>Fiscal Deficit = (Total Expenditure) - (Revenue Receipts + Non-debt Capital Receipts) </li></ul><ul><li>Primary Deficit = Fiscal Deficit – Interest Payments </li></ul>
  14. 14. India’s Fiscal Deficit
  15. 15. BUDGET AT A GLANCE <ul><li>Revenue Receipts </li></ul><ul><li>Capital Receipts </li></ul><ul><li>Total Receipts </li></ul><ul><li>Non-Plan Expenditure </li></ul><ul><li>Plan Expenditure </li></ul><ul><li>Total Expenditure </li></ul><ul><li>Revenue Deficit </li></ul><ul><li>Fiscal Deficit </li></ul><ul><li>Primary Deficit </li></ul>
  16. 16. Dream Budget <ul><li>Broadening of Tax Base </li></ul><ul><li>Reform in Subsidies </li></ul><ul><li>Resettlement of Slum Dwellers </li></ul><ul><li>Employment for All </li></ul><ul><li>Food for All </li></ul><ul><li>Education for All </li></ul><ul><li>Health and Social Security </li></ul><ul><li>Justice for All </li></ul>