Shaheed Benazir Bhutto University Sanghar Campus

By Anas Usman (22 BBA 01)

Contents:
• Introduction
• Types of Fiscal Policy
• Objectives of Fiscal Policy
 Fiscal Policy
• Fiscal policy refers to the governmental use of Taxation and Spending
to influence the conditions of the economy.
• Typically, fiscal policy comes into play during a time of recession and
inflation, where conditions are escalating quickly enough to warrant
government intervention.
• It means the use of taxation and public expenditure by the government for
stabilization or growth of the economy.
 Types of Fiscal policy

• Neutral Policy
• Expansionary Policy
• Contractionary Policy
 Neutral Policy

• Fiscal policy is said to be neutral when the level of government spending

in relation to tax revenue is stable over time.(G=T)

• This type of policy is usually undertaken when an economy is in

equilibrium neither rapidly expanding nor contracting.

• In this instance, government spending is fully funded by tax revenue,

which has a neutral effect on the level of economic activity .
 Expansionary Policy

• Expansionary policy, applies when the government responds to recession

by lowering taxes and increasing government spending.

• Here the principle at play is that when Taxes are Lowered, consumers
have more money in their pockets to spend or invest, which in increases
the demand for products and securities.

• And Increases in Government Spending leads firms to hire more

employees which results in lowering the unemployment, as well as
compete for employees more fiercely, which can increase wages.
 Contractionary Policy

• Contractionary policiy is applied during a period of Inflation.

• During this the government may Reduce Spending on public projects and
Increases Tax to reduces the amount of money available for individuals
or businesses to spend.

• The Contractiory Policy aims to decrease aggregate demand and lower

the inflation rate.
 Objectives of Fiscal Policy

• To promote economic growth:

Government promote economic growth by setting industries & builds
infrastructure.
• To reduce income and wealth inequalities:
Government reduces inequalities in income and wealth by taxing the rich
more and spending more on the poor.
• To provide employment opportunities:
By setting up public sector enterprises & provides subsidies, Tax holidays,
low rates of taxes etc)
 Objectives of Fiscal Policy
• To ensure stability in prices: (subsidies)
Government ensures stability of prices of essential goods and services by
regulating their supplies.

• To provide for effective administration:

Government incurs expenditures on police, defence, legislatures, judiciary, etc.
to provide effective administration.
Thank you.. 👍