1. What are various instruments for Fiscal policy in India ?
2. What do one mean by Fiscal adjustment ?
3. How does Fiscal Adjustment is more effective tool in emerging countries ?
4. What is Fiscal Adjustment ? How it is different from Fiscal Adjustment ?
5. Why Emerging countries are being adviced by IMF to go for Fiscal Adjustment as a preferred approach ?
6. How does Fiscal Policy affect private investment in physical infrastructure ?
7. How does Fiscal Policy affect Total Productivity Factor in an economy ?
@Babur @Wolverine8997 @trying_tobawesm @hummingbird @Sleeplessnights_89 @Neyawn @IWRA @Bajirao-Mastani @others plz pour in your views
Comments
1) - Fiscal refers to treasury, and so fiscal policy is the accounts of government, that is revenue and expenditure of the government.
The major tools of fiscal policy are taxation and subsidies and these are adjusted on what the government wish to achieve.
For expansionary fiscal policy, the government reduces taxes and spends more by borrowing
For contractionary fiscal policy the government increases taxes and reduces its spending.
These are two extreme ends and government is always somewhere in the middle trying to balance
6) - IF government borrows too much then the interest rates harden and so private investment declines.
- However, the relationship is not one way only, if the government borrows and spends money productively on capital investment for example building a rail link to port area, then the private player won’t mind putting more money in adding capacity to the port.
So it depends on how much money borrowed and how it is spent.
Also, if government is borrowing more, it means at a later date it will have to tax more or cannot cut the taxes to pay off the debt, and thus, businesses get a bad picture of the economy coz end of the day they are the ones to pay the taxes
Similarly , FDI will tend to stay away as government borrowing may lead to inflation, thus, real exchange rate declines and therefore, current account deficits can rise and therefore, foreign investors do not know whether to invest in such economy. Also, the earlier taxation issue holds true here as well.
7) With respect to your question on fiscal policy affecting total factor productivity - of course government expenditure is not very productive. For example, they are going to increase salaries, it is not going to increase the output.
However, if the government builds a road that can contribute much towards the economic output and also can spur growth so factor productivity will rise in that case. Similarly, if the govt sounds on skilling people, its not a bad idea.
Thus, it depends on how the government spends the money and that is why revenue and capital expenditure distinction becomes important.
2) And so coming back to question 2, fiscal adjustment, I would have thought that fiscal adjustment is similar to fiscal consolidation. It means government maintaining some discipline in spending and spending productively. Thus, minimise revenue deficits and have capital expenditures.
However, please direct me to the source where you come across the term fiscal adjustment, as it can mean a lot of things. If i read it in the context from where you have read i can answer the other questions related to it.
what fiscal prudence measures should be adopted to rectify the situation.
Thanx for explaining
There is a IMF report on "Fiscal Policy and Long Term report
"you will find that it suggests Govt should follow Fiscal Consolidation ( except in recession where it hurts badly)
Along with Fiscal Consolidation, Fiscal Adjustment is a good strategy to follow
I am little confused between Fiscal Consolidation and Fiscal Adjustment
aren't the 2 concepts same or atleast similar
https://www.imf.org/external/pubs/ft/pam/pam49/pam4903.htm