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Home » Economics Homework Help » Macroeconomics Help » Fiscal Instruments
Fiscal Instruments
Fiscal policy is implemented fiscal instruments also called fiscal handles’ fiscal tools’ and fiscal levers, the changes made in fiscal tools work through their linkage to the target variables. The policy instruments and target variables are briefly described below.

Fiscal instruments

Fiscal instruments refer to the budgetary measures which the government use and manipulates to achieve some predetermined objectives. The major fiscal instruments include the following measures.

(i) Budgetary policy: -
in narrow sense of the term, budgetary policy refers to government’s plan to keep its budget in balance, In surplus or in deficit. This kind of budgeting is in itself a fiscal instrument. When the government keeps its total expenditure equal to its revenue, as a matter of policy. It means it has adopted a balanced-budget policy.

(ii) Government expenditure.:- the government expenditure include total public spending on purchase of goods and services, payment of wages and salaries to public servants, public investment, infrastructure development, transfer payments (pensions, subsidies, unemployment allowance,. Grants and aid, payments of interest, and amortization of loans). Given the expendable resources the government, the size and the composition of government expenditure is a matter of government discretion. The government expenditure is an injection into the economy: it adds to the aggregate demand.

(iii) Taxation: -
a tax is a non quid pro quo payment by the people to the government tax payment by the people to the government against which there is no direct return to the tax payers. By this definition, taxation means no quid quo transfer of pricier income to public coffers by means of taxes. Taxes are classified as direct taxes and indirect taxes. Direct taxes include taxes on personal incomes, corporate income, wealth and property. Personal income tax and corporate income tax are the two most important direct taxes imposed by the central government in India.

(iv) Public borrowings: -
public borrowings include both internal and external borrowings. The governments make borrowings, generally, with a view to financing their budget deficits, internal borrowings are of two types: (i) borrowings from the public by means of government bonds and treasury bills, and (ii) borrowing from the central bank. Eternal borrowings include borrowings from (a) foreign government, (b) international organizations like world’s bank and IMF, and (c) market borrowings; it has the same effect on the economy as deficit financing. in India, the total borrowing accounted for about 18 percent of the total central government expenditure in 2007-08.

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