the government of any country formulates the fiscal policy with reference to the prevailing situation in the country. therefore, developing and developed countries will have different fiscal objectives and policies. due to economic development, developed countries won't have economic problems as those in developing countries. however, from time to time due to economic instability that arises in the economy creates the problems of trade cycle. therefore, in such countries the main objective if fiscal policy is to establish economic stability. but in under-developed to developing countries there will be many types of problems. there won't be adequate development in the resources and factors available in the country. the economy will be in semi-developed or undeveloped state. thus, in such countries the objective of fiscal policy will be optimum utilization of resources and factors, price stability, increase in employment, balance of payment, removal of inequality in the distribution of income, etc. for the economic growth and development. the government tries on its own to solve such problems because in such countries the government has the main role in the economic development of the country. therefore, the main objectives of the fiscal policy of the under-developed or developing countries can be presented as follows:
1. capital formation
for any developing country, the main objective of fiscal policy is the capital formation because in such countries the marginal propensity to consume of the people will be high. that is the people of such countries consume most part of their income. this will result in no saving or least saving. as a result, there won't be capital formation due to lack of saving. capital formation is very essential for the economic development. therefore, the government aims in capital formation through its fiscal policy. due to the majority of poor people in the country, the private sectors won't invest in such sectors. the government tries to mobilise its investment policy in such sectors. investments in such sectors will attract private sectors towards investment. for this the government invests in the construction and development of infrastructures required for development, such as, development of roads and transportation, development of electricity and communication development of irrigation facilities, etc. this will increase the income of public. for the capital formation the government mobilizes saving. different government securities will be sold to the public. this will increase the propensity to save of the people. the government invests the saving of the public in different productive sectors. so, in this manner the government forms and mobilises the capital through internal debt.
2. full employment
the "great economic depression" of 1930 A.D.created a state of great unemployment in the economy . before that the leading classical economist J.B. say's law of market that, "supply always creates its own demand" was widely accepted. the "great economic depression" proved J.M. Keynes. in the year 1936 A.D. in his book ,"general theory of employment interest and money" presented the concept that the state of unemployment is created due decrease in effective demand. that is , due to decrease in investment there won't be capital formation and as a result unemployment will emerge in the economy. for this, national production should be increased otherwise there will be unfavorable effect on employment. production also depends upon effective demand. increase in effective demand increase employment and decrease in effective demand decreases employment and decrease on effective demand decrease employment. so, according to Keynesian concept employment fully depends upon effective demand. according to the concept of developed countries in reference to full employment all people who are qualified to work or who are capable of working should immediately ger employment at the prevailing wage rate when desired to work. however, this does not mean that there won't be any people unemployed. that is, for the creation of employment the government has to implement its fiscal policy. in under-developed countries the main objective of he fiscal policy is to increase the level to employment for the increased population due to excessive increase in population. for this , the government invests for the development of small cottage industries as well as different training will be provided to the public in relation to the cottage industries.
3. mobilization of the resources
in developing countries adequate amount of natural resources will be available. the capital of the country won't be used for the moboilisation of such resources. this is because private investors cannot mobilize such resources. so, finding the means of mobilizing such resources is the main objective if the government fiscal policy. under-developed countries lack capital and technological knowledge. through fiscal policy. the government collects capital and develops technological knowledge. for this the government will require to collect capital. to fulfill this requirement the government creates suitable environment for the internal as well as external loans. so, with the mobilisation of misused resources the government will increase employment, production, income, etc. in the economy.
4. economic stability
economic stability is an important objective of the fiscal policy. economic problems such as, unemployment, inflation, deflation,etc. keep on occurring is the economy from time to time. as a result of this, the states of prosperity and depression occur in the economy. these create instability in the economy. economic instability drags the economy towards even worse state. the
"great economic depression" of 1930 A.D. created economic instability with the massive decrease in production, employment, income, price, saving and investment of every country of the world. for the elimination of such economic crisis, the government has to formulate its fiscal policy.for the economic stability in the developed and under-developed countries different fiscal policies have to be formulated and implemented.
there are two main objectives of the fiscal policy in the developed countries. firstly, to maintain the state of full employment in the economy and secondly to control ups and downs economy such as, inflation and deflation. to fulfill these objective in such countries, effective demand has to be increased through fiscal policy. as a result, problem of business cycle won't occur in the economy. to maintain the national income at some fixed level the government expenditure works as a balancing factor. government expenditures can fully control such ups and downs that occur in the economy. if in the economy there is a state of depression, the government expenditure has to be increased and in the state of inflation, the government expenditure has to be decreased with the implementation of compensatory fiscal policy. in the state of depression, through government fiscal policy the production sectors should be taxed less so that discouraging environment won't be created in production. similarly, in the time of inflation, the government has to raise internal loan as well as to impose heavy taxes. this will decrease in demand for the elimination of the state of depression the government has to spend on the development of public utilities such as, construction of roads, irrigation, health sector, education sector, etc. such public work programmes increase the government expenditure. this will mobilise the resources and the unemployed will get employment. this will increase the income and the marginal propensity to consume of the people. thus, increase in demand increase investments in government as well as non-government sectors.
5. economic development
the economic growth rate if the underdeveloped countries will be very small. the government aims in accelerating the economic development through fiscal policy. for the economic development, the resources and factors available in the country should be mobilizable efficiently. in underdeveloped or least-developed countries the natural resources are usually wasted while in some situations these resources are also misused. the government formulates the fiscal policy for the proper and efficient mobilisation of such resources and factors. in such countries, the marginal propensity to counselor of the people will be high and saving will be low. the government can collect dispersed saving for capital formation to invest in appropriate sectors.
the following things should be looked upon very carefully for the economic development in the underdeveloped or least developed countries.
(1) investment in productive sector
the objective of the government fiscal policy should encourage investment in productive sectors from both government and non-government sectors.
(2) monetary stability
along with the increase in various activities of the economy the monetary stability should also be established.
(3) distribution of national income
when national income increase then careful thought should be given to whether it is equally distributed or not.
so, for the economic development of underdeveloped countries the investors, savers, stability and redistribution should be given a clear thought.
6. control of inflation
different economic activities in a country increase inflation in every country day after day. deficit budget of the underdeveloped countries and adverse balance of payment, the economy has been badly affected. to face such economic crisis the government has to undertake appropriate fiscal policy which will proved stability for economic growth in the economy. these sorts of situations are seen specially in underdeveloped countries. in these , in addition to deficit budget, production do not increase due to misuse of resources, lack of credit facilities. lack of necessary raw materials ,lack of technological knowledge, etc. but due to high population growth inflation occurs. to control this is the work of the government. first, the government traces out the cause for the inflation and then will formulate appropriate fiscal policies for its control. if aggregate effective demand is more than the aggregate supply of goods and services, then demand pull inflation will occur in the economy. so, the government has to formulate appropriate fiscal policies to control demand pull inflation. thus, in such countries, the objective of fiscal policy is also to control inflation.
1. capital formation
for any developing country, the main objective of fiscal policy is the capital formation because in such countries the marginal propensity to consume of the people will be high. that is the people of such countries consume most part of their income. this will result in no saving or least saving. as a result, there won't be capital formation due to lack of saving. capital formation is very essential for the economic development. therefore, the government aims in capital formation through its fiscal policy. due to the majority of poor people in the country, the private sectors won't invest in such sectors. the government tries to mobilise its investment policy in such sectors. investments in such sectors will attract private sectors towards investment. for this the government invests in the construction and development of infrastructures required for development, such as, development of roads and transportation, development of electricity and communication development of irrigation facilities, etc. this will increase the income of public. for the capital formation the government mobilizes saving. different government securities will be sold to the public. this will increase the propensity to save of the people. the government invests the saving of the public in different productive sectors. so, in this manner the government forms and mobilises the capital through internal debt.
2. full employment
the "great economic depression" of 1930 A.D.created a state of great unemployment in the economy . before that the leading classical economist J.B. say's law of market that, "supply always creates its own demand" was widely accepted. the "great economic depression" proved J.M. Keynes. in the year 1936 A.D. in his book ,"general theory of employment interest and money" presented the concept that the state of unemployment is created due decrease in effective demand. that is , due to decrease in investment there won't be capital formation and as a result unemployment will emerge in the economy. for this, national production should be increased otherwise there will be unfavorable effect on employment. production also depends upon effective demand. increase in effective demand increase employment and decrease in effective demand decreases employment and decrease on effective demand decrease employment. so, according to Keynesian concept employment fully depends upon effective demand. according to the concept of developed countries in reference to full employment all people who are qualified to work or who are capable of working should immediately ger employment at the prevailing wage rate when desired to work. however, this does not mean that there won't be any people unemployed. that is, for the creation of employment the government has to implement its fiscal policy. in under-developed countries the main objective of he fiscal policy is to increase the level to employment for the increased population due to excessive increase in population. for this , the government invests for the development of small cottage industries as well as different training will be provided to the public in relation to the cottage industries.
3. mobilization of the resources
in developing countries adequate amount of natural resources will be available. the capital of the country won't be used for the moboilisation of such resources. this is because private investors cannot mobilize such resources. so, finding the means of mobilizing such resources is the main objective if the government fiscal policy. under-developed countries lack capital and technological knowledge. through fiscal policy. the government collects capital and develops technological knowledge. for this the government will require to collect capital. to fulfill this requirement the government creates suitable environment for the internal as well as external loans. so, with the mobilisation of misused resources the government will increase employment, production, income, etc. in the economy.
4. economic stability
economic stability is an important objective of the fiscal policy. economic problems such as, unemployment, inflation, deflation,etc. keep on occurring is the economy from time to time. as a result of this, the states of prosperity and depression occur in the economy. these create instability in the economy. economic instability drags the economy towards even worse state. the
"great economic depression" of 1930 A.D. created economic instability with the massive decrease in production, employment, income, price, saving and investment of every country of the world. for the elimination of such economic crisis, the government has to formulate its fiscal policy.for the economic stability in the developed and under-developed countries different fiscal policies have to be formulated and implemented.
there are two main objectives of the fiscal policy in the developed countries. firstly, to maintain the state of full employment in the economy and secondly to control ups and downs economy such as, inflation and deflation. to fulfill these objective in such countries, effective demand has to be increased through fiscal policy. as a result, problem of business cycle won't occur in the economy. to maintain the national income at some fixed level the government expenditure works as a balancing factor. government expenditures can fully control such ups and downs that occur in the economy. if in the economy there is a state of depression, the government expenditure has to be increased and in the state of inflation, the government expenditure has to be decreased with the implementation of compensatory fiscal policy. in the state of depression, through government fiscal policy the production sectors should be taxed less so that discouraging environment won't be created in production. similarly, in the time of inflation, the government has to raise internal loan as well as to impose heavy taxes. this will decrease in demand for the elimination of the state of depression the government has to spend on the development of public utilities such as, construction of roads, irrigation, health sector, education sector, etc. such public work programmes increase the government expenditure. this will mobilise the resources and the unemployed will get employment. this will increase the income and the marginal propensity to consume of the people. thus, increase in demand increase investments in government as well as non-government sectors.
5. economic development
the economic growth rate if the underdeveloped countries will be very small. the government aims in accelerating the economic development through fiscal policy. for the economic development, the resources and factors available in the country should be mobilizable efficiently. in underdeveloped or least-developed countries the natural resources are usually wasted while in some situations these resources are also misused. the government formulates the fiscal policy for the proper and efficient mobilisation of such resources and factors. in such countries, the marginal propensity to counselor of the people will be high and saving will be low. the government can collect dispersed saving for capital formation to invest in appropriate sectors.
the following things should be looked upon very carefully for the economic development in the underdeveloped or least developed countries.
(1) investment in productive sector
the objective of the government fiscal policy should encourage investment in productive sectors from both government and non-government sectors.
(2) monetary stability
along with the increase in various activities of the economy the monetary stability should also be established.
(3) distribution of national income
when national income increase then careful thought should be given to whether it is equally distributed or not.
so, for the economic development of underdeveloped countries the investors, savers, stability and redistribution should be given a clear thought.
6. control of inflation
different economic activities in a country increase inflation in every country day after day. deficit budget of the underdeveloped countries and adverse balance of payment, the economy has been badly affected. to face such economic crisis the government has to undertake appropriate fiscal policy which will proved stability for economic growth in the economy. these sorts of situations are seen specially in underdeveloped countries. in these , in addition to deficit budget, production do not increase due to misuse of resources, lack of credit facilities. lack of necessary raw materials ,lack of technological knowledge, etc. but due to high population growth inflation occurs. to control this is the work of the government. first, the government traces out the cause for the inflation and then will formulate appropriate fiscal policies for its control. if aggregate effective demand is more than the aggregate supply of goods and services, then demand pull inflation will occur in the economy. so, the government has to formulate appropriate fiscal policies to control demand pull inflation. thus, in such countries, the objective of fiscal policy is also to control inflation.
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