The fiscal deficit management adopted in developing countries including Nigeria have been effective in solving the country’s current account deficit problem. As it is true, the national income and per capita income of underdeveloped countries is very low. Without a liquid market in their government debt interest rate, information may be distorted and open market operations difficult to implement. The purpose of the paper is to examine the effect of fiscal policy variables on economic growth in South Africa. Above all, direct curtailment of consumption and socially unproductive investment may be helpful in mobilization of resources and the further check of the inflationary trends in the economy. B. easier to conduct than in developed economies because politicians tend to be more socially-minded. They can be controlled by various other ways of which the chief is the powerful method of fiscal policy.”. Image Guidelines 5. Tax exemptions and tax concessions may help a lot in attracting resources towards the favored industries. This further gives rise to repeated wage-price spirals. Expenditure on all these measures will help in eradicating unemployment and under-employment. The instability caused by external forces is corrected by a policy, popularly known as ‘tariff policy’ rather than aggregative fiscal policy. As a result the level of saving is very low in these economies. developing countries, stimulus may be less effective because monetary transmission is weak and fiscal space and fiscal multipliers are often small. Another seventh major objective of foreign policy is to protect the economy from inflation and damaging competition from foreign countries. In fact, fiscal measures of the government can induce the private entrepreneurs to take active participation for mobilizing resources at least in the long run. “These principles encapsulate the key characteristics of any sound … The study by IMF staff, Evolving Monetary Policy Frameworks in Low-Income and Other Developing Countries, aims to provide guidance to this group of countries, and uses the same set of principles that characterize effective monetary policy frameworks in countries with scope for independent monetary policy. Prof. R.N. A properly planned investment will not only expand income, output and employment but will also step up effective demand through multiplier process and the economy will march automatically towards full employment. To mobilise resources for economic growth, especially for the public sector; 2. Sometimes, the policy of protection is a useful tool for the growth of some socially desired industries in an under-developed country. Fiscal policy in developing countries is thus used to achieve which are different from advanced countries. For attaining these objectives the study used data from 1990 to 2014. The four main components of fiscal policy are (i) expenditure, budget reform TOS 7. Such countries have weak infra­structure, i.e, they lack adequate means of transport and communications, roads, ports, highways, irrigation and power. During the period of recession, government should undertake public works programmes through deficit financing. Therefore, in developing economies, inflation is a permanent phenomena where there is a tendency to the rise in prices due to expanding trend of public expenditure. Resources need to be mobilised so that there can be funds for financing the development programs in the public sectors. A redistributive tax policy should be highly progressive and aim at imposing heavy taxation on the richer and exempting poorer sections of the community. Besides, extreme inequalities create political and social discontentment which further generate economic instability. Therefore, to reduce unemployment and under-employment, the state should spend sufficiently on social and economic overheads. Macroeconomic policies, as traditionally measured, ... at the behavior of macroeconomic policy variables -- capturing fiscal… To mobilise resources for economic growth, especially for the public sector; 2. 1.6 Research hypothesis Hypothesis 1: There is a positive impact on the fiscal policies used in the Chinese economy. Therefore, redistributive expenditure should help economic development and economic development should help redistribution. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. “Arthur Smithies, fiscal policy aims primarily at controlling aggregate demand and leaves private enterprise its traditional field- the allocation of resources among alternative uses.”. Moreover, it should strengthen physical controls of essential commodities, granting of concessions, subsidies and protection in the economy. In underdeveloped countries, the structure of rate of interest in … Capital assumes a central place in any development activity in a country and fiscal policy can be adopted as a crucial tool for the promotion of the highest possible rate of capital formation. Thus, well-planned fiscal programme, public expenditure can help development of human capital which in turn possesses positive effects on income distribution. Objectives of Fiscal Policy in a Developing Economy (1) Mobilization of Resources. Privacy Policy3. Their population is increasing at an explosive rate which necessitates rapid economic development to meet the requirements of the rapidly growing population. Share Your PPT File. Objectives of Fiscal Policy in Developing Countries: In developing countries, taxation, Government expenditure and borrowing have to play a very important role in accelerating economic development. Monetary policy alone will not do. It should promote the economy as a whole which in turn helps to raise national income and per capita income. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. Price Stability: There is a general agreement that economic growth and stability are joint objectives … The item Tax systems and policy objectives in developing countries: general principles and diagnostic tests represents a specific, individual, material embodiment of a distinct intellectual or artistic creation found in International Bureau of Fiscal Documentation. They also lack technical know-how. should be used properly so that production, consumption and distribution may not adversely affect. For this, suitable fiscal policy of the government can be devised to bridge the gap between the incomes of the different sections of the society. It needs accelerated rate of capital formation. TOS4. Disclaimer 9. It adds to the existing literature on fiscal redistribution in developing economies by taking a global (as opposed to regional) developing-country perspective of fiscal redistribution. 3. 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