What is a Fiscal Policy? Fiscal Policy definition was given differently by various economists keeping the main essence same. Fiscal policy refers to the policies relating to various financial activities of the Government such as taxing, spending, borrowing and debt management. These activities of the Government influence the nature and direction of various economic activities in a country. The Government of a country takes various fiscal measures for encouraging the productive and desirable activities and for discouraging the undesirable and unproductive activities.
Fiscal Policy Definition :
Fiscal Policy definition was given by Arthur Semitheis. According to him, Fiscal policy is a policy under which the Government uses its expenditure and revenue programmes to produce desirable effects and avoid undesirable effects on national income, production and employment.
Fiscal policy is used as a balancing device in the development of an economy. It refers to a process through which the Government gives shape to its revenue and expenditure in such a way as to contribute towards the maintenance of a progressive and high employment economy free from any excessive inflationary and deflationary pressures.
In other words, Fiscal policy is a technique which the Government uses to attain and maintain the full employment by manipulating its revenue and expenditure in such a way as to maintain an equilibrium in the demand and supply of goods and service at a particular time.
There are three main constituents of fiscal policy i.e. (i) taxation policy (ii) expenditure policy and (iii) public debt policy. All these three constituents should work simultaneously to get the desired results.
The role of fiscal policy in a developed Country is to maintain the level of full employment because their problem is not that of development (because they are fully developed) but of maintaining economic stability on account of business fluctuation caused by trade cycles.
Whereas in a developing economy, the role or fiscal policy is to accelerate the rate of economic growth by promoting the rate of capital formation and investment, changing the pattern of investment into desired direction, maintaining or increasing the adequate supply of capital and consumer goods and services, maintaining price stability and above all making the distribution of national product just and equitable. Fiscal Policy definition given by other economists will be explained later on.