Fiscal policy involves government actions in expenditure and taxation to influence the economy, impacting aggregate demand, resource allocation, and income distribution. Its objectives include achieving desirable price levels, consumption, employment, income distribution, capital formation, and controlling inflation. Key measures include reducing unnecessary expenditure, increasing taxes, public borrowing, and adopting surplus budgets, which should be complemented by monetary and non-fiscal measures.

1. FISCAL POLICY

2. Fiscal Policy
Fiscal policy is the use of the government expenditure and revenue
collection to influence the economy.
The two major instruments of fiscal policy are government
expenditure and taxation.
Changes in the level and composition of taxation and government
spending can impact the following variables in the economy:
• Aggregate demand and level of economic activity
•The pattern of resource allocation
•The distribution of income

3. Meaning of Fiscal Policy
 Fiscal policy refers to the economic policy that involves the
government changing the level of taxation and government spending in
order to influence Aggregate Demand and the level of economic
activity. The fiscal policy is concerned with the raising of government
revenue and incurring of government expenditure.
The three positions of fiscal policy are : Neutral, Expansionary.
Contractionary.

4. Objectives of Fiscal Policy
To achieve desirable price level
To achieve desirable consumption level
To achieve desirable employment level
To achieve desirable income distribution
Increase in capital formation
To control Inflation

5. 2. Fiscal Measures:.
(a) Reduction in Unnecessary Expenditure: The government should
reduce unnecessary ex­
penditure on non-development activities in order to
curb inflation. But it is not easy to cut government expenditure and it
becomes difficult to distinguish between essential and non-essential
expenditure. Therefore, this measure should be supple­
mented by taxation.
(b) Increase in Taxes: To cut personal consumption expenditure, the rates
of personal, corpo­
rate and commodity taxes should be raised and even
new taxes should be levied, but the rates of taxes should not be as high as
to discourage saving, investment and production. To increase the supply of
goods within the country, the government should reduce import duties and
increase export duties.

6. (c) Borrowing: Public borrowing is another device to controll the
upswing of business cycle.
(d) Surplus Budgets: An important measure is to adopt anti-inflationary
budgetary policy. For this purpose, the government should give up deficit
financing and instead have surplus budgets. It means collecting more in
revenues and spending less.
Like the monetary measures, fiscal measures alone cannot help in
controlling inflation. They should be supplemented by monetary, non-
monetary and non-fiscal measures

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