The essence and goals of fiscal

policy
Bormotova Anastasiia
Fiscal policy
Fiscal policy is the regulation of state revenues and expenditures. Fiscal policy measures are determined by the
set goal (fighting inflation, smoothing cyclical fluctuations of the economy, reducing the unemployment rate).
The state regulates aggregate demand and real national income through public spending, transfer payments, and
taxation.

The content of the government's financial policy: goals and tools.

Tax system: types of taxes, principles of taxation, subjects and objects
of taxation. PLAN:

• Concept of fiscal policy.

• Stimulating and restraining fiscal policy.
• Tax rate. Principles of taxation.
• National budget. State budget deficit and surplus.

Fiscal or tax-budgetary policy is one of the tools of government intervention in the economy in order to overcome
economic recession. It provides for the collection of state taxes from all subjects of the economy that have any
income.
Essence of fiscal policy
Classics of economic theory U. Petit, A. Smith, D. Ricardo, Zh.B. This substantiates the
concept of state non-interference in the economy.
Adam Smith's theoretical concept of the "invisible hand" provided for economic
liberalism, non-interference of the state in economic life, the abolition of state regulation
of industry and trade, free trade in land, freedom of movement of labor and goods, etc.
Demand will always be sufficient to consume all products produced on the basis of
available resources and modern technology. Say's Law (supply creates demand).
In order to achieve legal and economic guarantees, to determine the limits of its own
non-interference, the state has to spend on public works, expenses on ensuring external
A. Smith
security, and expenses on legal protection.

Recognition of the need for state intervention in the economy took place at the
beginning of the 20th century. (financial crisis)
One of the most widespread concepts of state regulation of the economy of that period is
Keynesian, which is based on the fact that the system of market relations is not perfect
and therefore cannot be exclusively self-regulated.
J. Keynes and representatives of neo-Keynesianism (A. Hansen, N. Kaldor, R. Lucas,
etc.) believed that fiscal policy is the driving force of economic growth.

J. Keynes
Fiscal policy has the following functions:
• impact on the economic situation;
• redistribution of national income;
accumulation of necessary resources for financing social programs;
• stimulation of economic growth;
• maintaining a high level of employment, etc.

Fiscal policy measures are determined by the set goal (fighting inflation, stabilizing the economy, ensuring economic
growth). The state regulates aggregate demand and real national income through government spending, transfer
payments, and taxation.

The budget and tax policy of the state is an important essential component of the state regulation of the economy.
According to J. Keynes and representatives of the neoclassical direction, in economic theory it is precisely as a result
of fiscal policy that the state performs the main functions of regulating the main macroeconomic processes and
phenomena of the market economy.
Fiscal policy is divided into discretionary and non-discretionary.

Discretionary policy is a purposeful change in the amount of state taxes,

expenditures, and the balance of the state budget (the difference between
part of taxes and state purchases) as a result of a change in legislation, the
purpose of which is:

- stabilization of the economy;

- achieving equilibrium in the economy;
- increasing the level of employment;
- reduction of inflation rates.

The instruments of discretionary fiscal policy include:

- change in tax rates;
- cancellation or introduction of new taxes or tax benefits;
- transfers, the volumes of which are neutral in relation to the amount of income.
Depending on the phase of the cycle, discretionary fiscal policy can be:
stimulating (expansion) fiscal policy
is budget and tax policy aimed at increasing government spending and reducing taxes in order to expand aggregate demand in the economy during a
cyclical downturn;
stimulatory (restrictive) fiscal policy
is a budgetary and tax policy, under which there is a reduction in state expenditures and an increase in taxes with the aim of reducing aggregate
demand in conditions of excess demand during a cyclical rise;
non-discretionary (automatic) fiscal policy
is a policy of built-in stabilizers, it is not related to changing laws;
an automatic ("built-in") stabilizer
is a mechanism that makes it possible to reduce cyclical fluctuations in the economy without changing the tax legislation.
 Goals of fiscal policy
The fundamental goals of fiscal policy are:

- mitigating cyclical fluctuations of the economy through budgetary financing of public expenditures and regulation of taxation rates;
- stabilizing the economy and ensuring stable rates of economic growth;
- ensuring effective employment and controlled moderate inflation.

Since the appearance of the Keynesian doctrine, fiscal policy has been used as the main tool for regulating the economic cycle. At the
same time, depending on the phase of the cycle, methods of stimulating or restraining fiscal policy are used.

Also, the main goals of fiscal policy are to achieve and maintain full employment, reach a high rate of economic growth, and to keep
prices and wages stable. But, fiscal policy is also used to curtail inflation, increase aggregate demand and other macroeconomic issues.

In expansionary fiscal policy (which is the most common method

employed), the government implements policies that can
increase or decrease taxes, spend money on projects to
stimulate the economy and increase employment, or increase
productivity levels in the economy.
The three major goals of fiscal policy and signs of a healthy
economy include inflation rate, full employment and economic
growth as measured by the gross domestic product (GDP).
Let's take a look at the individual goals.
The inflation rate refers to the rise in costs for goods and
services in relation to decreases in purchasing power. For
example, if the rate of inflation is 3%, than your $2.00 morning
cup of coffee will cost you $2.06 in a year. In most countries,
central banks try to maintain an inflation rate of no more than
3%.
Secondly, a healthy economy will have a low unemployment
rate, also described as full employment. This means, if you
need a job, you'll be most likely able to find one.
The third indicator of a healthy economy is economic growth
as measured by the gross domestic product (GDP). The GDP Unemployment rates were sky-high during the Great
reflects the monetary value of all the goods produced and Depression.

services offered in a country during a particular period, and

ideally, it's increasing at a steady, stable rate.
 Central idea
The central idea behind fiscal policy is that, by manipulating spending and
taxation, the government can either stimulate consumption and investment or
slow it down (depending on the market signals). In this manner, the
government uses fiscal policy to lower personal or corporate taxes to encourage
consumer spending or investment, and, vice versa, raises taxes and cuts
spending to slow it.

But there are several other ways fiscal policy is put to work in the economy.

One way the government uses fiscal policy is to stimulate the economy if it
ascertains that business activity is lagging - and spends more to stir up the
economy (called "stimulus" spending). However, if the government doesn't
have enough cash to fund its own spending, it will often borrow money in the
form of issuing government bonds (or treasury bonds) - debt securities - and,
thus, spends the funds under this debt. This is often referred to as "deficit"
spending, and is one of the major ways the government uses fiscal policy.