Fiscal deficit


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  • 初级课程的详细信息和/或课目/项目所需的书籍/资料。
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  • Fiscal deficit

    1. 1. Fiscal Policy By Kumar Devrat Rohita Mohit Shukla Nasreen Prashant Sharma
    2. 2. What is Fiscal Policy?• Fiscal policy involves the Government changing the levels of Taxation and Govt Spending in order to influence Aggregate Demand (AD) and therefore the level of economic activity.• AD is the total level of planned expenditure in an economy• C- is consumption ,• I- is Investment,• G- is Government spending, • X- is total exports, and • M- is total imports AD = C+ I + G + X – M
    3. 3. Reasons for Fiscal deficit Increase in Subsidies Unproductive Payment of expenditure by Interest the government Defense Huge Borrowings Expenditure Poor Weak Revenue Performance of Mobilization Public Sector 3 Tax Evasion
    4. 4. Objectives Of Fiscal Policies Increase in capital Achieve formation desirable employment level Achieve desirableAchieve incomedesirable distributionprice Achievelevel desirable consumption level 4
    5. 5. Types Of Fiscal policies Expansionary Fiscal Policy Contractionary Fiscal Policy 5
    6. 6. Expansionary Policy / Loose Involves increasing AD Govt will increase spending (G) & Cut Taxes Lower taxes will increase consumers spending because they have more disposable income(C) This will worsen the govt budget deficit Risk of High Inflation due to huge demand & increase in money supply
    7. 7. Contractionary Policy / Tight Involves decreasing AD Govt will cut spending (G) & Increase Taxes High taxes will decrease consumers spending because they have less disposable income(C) This will help in improving the govt budget deficit Not Easy to achieve this
    8. 8. Balancing Economy Automatic Fiscal Stabilizer Discretionary Fiscal Policy 8
    9. 9. Tools Of Fiscal Policies Public Expenditure Income Of The Government Government Borrowings 9
    10. 10. Fiscal Responsibility AndBudget Management (FRBM) • Long-term macroeconomic stabilityFRBM • Reducing revenue deficitFRBM • Reducing the Public debtFRBM • No Borrowing from the RBIFRBM
    11. 11. Criticisms of Fiscal Policy Disincentives of Tax Cuts. Poor Crowding Informati out on Time lags
    12. 12. Implications of Fiscal policy• It will lead to capital infrastructure like higher education, growth and output.• It help and facilitate trade and promote economic activity in the private sector.• It will build up the framework for strong economic growth and working towards full employment.• It will improve and promote in economic development.
    13. 13. IS-LM Curve 13
    14. 14. Cont..• An increased deficit by the national government shifts the IS curve to the right.• This raises the equilibrium interest rate (from i1 to i2) and national income (from Y1 to Y2), as shown in the graph.• The equilibrium level of national income in the IS-LM diagram is referred to as aggregate demand.• The graph indicates one of the major criticisms of deficit spending as a way to stimulate the economy: rising interest rates lead to discouragement – of private fixed investment, which in turn may hurt long-term growth of the supply side 14
    15. 15. AS-AD FrameworkPrice level AS P1 • P0 • AD1 AD0 15 Y0 Y1 Real GDP
    16. 16. Government’s Income• Direct and Indirect Tax• Progressive Tax and Regressive Tax• Non Tax Revenue • Administrative receipts • Net contribution of • Public sector undertaking • Railways • Posts and Telegraphs • Currency and mint • Other 16
    17. 17. Public Debt• The government can turn to the capital markets to borrow the necessary money.• Borrowings could be from the Reserve Bank of India (RBI), from the public by floating bonds, financial institutions, banks and even foreign institutions.• Borrowing from capital market is done primarily by issuing securities, either Treasury Bills or Treasury Bonds 17
    18. 18. Public Expenditure• Public expenditure is incurred in the form of purchases of goods and services, transfer payments and lending.• Divided under two heads i.e. Plan Expenditure and Non Plan expenditure.• The plan expenditure is developmental in nature. Plan expenditure refers to the expenditure incurred by the Central Government on Programs/Projects, which are recommended by the Planning Commission.• According to the ministry of finance non-Plan expenditure is a generic term, which is used to cover all expenditure of Government not included in the Plan expenditure. It includes both developmental and non- developmental expenditure. Part of the expenditure is obligatory in nature e.g. interest payments, pensionary charges and statutory transfers to States. A part of the expenditure is an essential obligation of a State, e.g. Defense and internal security. Expenditure on maintaining the assets created in previous Plans is also treated as Non-plan expenditure. 18
    19. 19. Thank You !