Merits of Fiscal Policy

● Increase in economic growth - A FP basically facilitates the expansion of

the national economy.  For instance, on the reduction of tax rates by the
government, businesses & individuals will have a greater incentive to invest
and push the economy in a forward direction.

● Reduction in unemployment - If the rate of unemployment is high, the

government can implement an expansionary fiscal policy, that is it can
increase its spending and lower the taxes. Tax rate cuts, for example, will
enable people to have more disposable income, leading to increased demand
for goods and services. To cater to this increase in demand, the private sector
will increase production, creating more job opportunities in the process.

● Reduction in budget deficit - A budget deficit is a situation wherein the

expenditures exceed revenues. One of the effects of this deficit include
increased public debt, so to tackle this problem the country can use a
contraction in its fiscal policy. It will, therefore, reduce public spending and
increase tax rates to increase its revenues and lower the budget deficit. 

● Promotion of exports - The government has made constant endeavours to

promote exports through its various budgetary policies in the form of
concessions, subsidies etc.

● An incentive to save - A FP provides incentives to raise the savings rate,

both in households and the corporate sector through various budgetary policy
changes like - tax exemptions, tax concessions etc.

● Stimulation for the private sector - They also provide an incentive to the
private sector to expand its activities. Tax concessions & exemptions,
subsidies etc that are incorporated in the budget provide ample incentives to
the private sector units.