FISCAL POLICY

Imperio. Guinto. Haruna.

Garcia

Introduction

-Video-

Definition
Ineconomicsand political science,fiscal
policyis the use of
governmentrevenuecollection
(mainlytaxes) andexpenditure(spending)
to influence the economy.
Fiscal policy deals with taxation and
government spending and is often
administered by an executive under laws of
a legislature.

Importance
Fiscal policy plays an important role in
influencing the economic direction. These
are the main functions that summarizes the
importance of the fiscal policy:

Allocation
Distribution
Stabilization
Development

Evolution

Impact on Aggregate Supply and

EconomicGrowth
1. Labour market incentives:
Changes in income tax can improve incentives for people to
actively look for work
Lower taxes might also have a positive effect on work effort and
labour productivity
2.Capital spending:
Spending on infrastructure provides the capacity needed for other
businesses to flourish.
Lower rates of corporation tax might attract inward investment
from overseas
3.Entrepreneurship and investment:
Government spending can be used to fund an expansion in new
small business start-ups

4.Research and development and innovation

Government spending and tax allowances could be used to
encourage research
Tax incentives can be used to stimulate investment in low carbon
technologies
5.Human capital of the workforce:
Spending on education and increased investment in health and
transport can also have important supply-side effects in the long
run
Government spending can help to improve human capital,
employability and productivity