Fiscal Policy in Macro Economics

2. FISCAL POLICY

3. Fiscal Policy

4. Fiscal Policy
• The use of government spending and taxation to
promote economy

5. According to Semuelson:
“Fiscal policy is concerned with all those activities which
are adopted by the government to collect revenues and
make the expenditures so that economic stability could
be attained without inflation and deflation”

6. Budget:
 The budget is a financial statement showing the
estimate of receipts and expenditures
 Budget is an anti-inflationary as the objective is to
check inflation and sustain high growth of economy.

7. Budget
Revenue
Budget
Capital
Budget
Revenue
Receipt
Revenue
Expenditure
Capital
Receipt
Capital
Expenditure

8. ACTIVITIES OF THE STATE
Collection of Revenues
Spending of Revenues

9. ACTIVITIES OF THE STATE ( cont.)
• Collection of Revenues
 Taxes
 Fees
 Fines
 Loan
–Internal Loans
–External Loans

10. ACTIVITIES OF THE STATE ( cont.)
Spending of Revenues
 Productive
 Non-Productive

11. • Productive Non-Productive
• Dams Health
• Roads Education
• Mills Defense
• Bridges Justice
• Railways Social Security
• Electricity Plants Embassies
• Engineering unit Politics

12. Types of Fiscal policy
• Neutral Fiscal policy
• Expansionary Fiscal policy
• Contractionary Fiscal policy

13. Neutral Fiscal policy
G=T (Govt. spending = Tax Revenue)
neutral effect on economy

14. Expansionary Fiscal policy
• Expansionary fiscal policy means that the government is increasing
government spending and reducing taxation in an attempt to increase the
money available in the economy.
G > T
T G
Contractionary Fiscal policy
• Contractionary fiscal policy is when the government increases taxation and
reduces government spending in an attempt to reduce money in the
economy and as a result inflation.
G < T
T G

15. Budget Deficit:
• A government’s budget deficit is the difference between what
it spends (G) and what it collects in taxes (T) in a given period:
B u d g e t d e f G Ti c i t ≡ −
Budget Surplus:
•The amount by which a government income exceeds its
spending
•Effective tool to achieve the objective of price stability

16. Objectives
 To Achieve Equal Distribution of Wealth
 Increase in Savings
 Degree of inflation
 To Achieve Economic Stability
 Price stability

17. Limitation of Fiscal Policy:
• Lack of Elasticity
• Illiteracy
• Limited Sector
• inadequate Statistics
• Delay in decision

18. Islamic Point of view:
• Equally Distribution Of Resources
• Collect Zakat from rich
Islamic Sources of Revenue
• Zakat
• Ushar
• Fitrana
• Sadqat
• Khaiarat

19. •
Where are we now?
• Recent economic issues in Pakistan

20. Girl in search of water Man on the moon
WE ARE DIFFERENT – A LOT OF SPACE TO COVER

21. Child labour scavenging food
WE ARE DIFFERENT – A LOT OF SPACE TO COVER

25. Survival
or
Growth
?

27. Suggestions and
Recommendations

28. –Road map
Keeping
inflation under
control
growth
momentum
Improving
social
indicators
Maintain fiscal
prudence by
keeping fiscal
deficit low

29. Thank You