Fiscal policy uses government spending and taxation to influence the economy. It aims to achieve economic stability without inflation or deflation. The government collects revenues through taxes, fees, fines, and loans, then spends money on productive investments like infrastructure and non-productive services like education and health. The budget shows estimated receipts and expenditures. Fiscal policy can be neutral, expansionary, or contractionary depending on whether spending equals, exceeds, or is less than tax revenue. While fiscal policy aims to evenly distribute wealth and resources, limitations include inadequate data and delayed decision-making.
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.
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 fic it ≡ G − T
Budget Surplus:
•The amount by which a government income exceeds its
spending
•Effective tool to achieve the objective of 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