How To Achieve Economic Growth Using The Fiscal Policy

In this Article I would discuss the possible ways governments of nations can achieve economic growth by just using a simple but complicated economic policy called the Fiscal Policy. The Fiscal policy I would define as an economic policy which seeks to influence the economy by managing the amounts of money that the government spends and the amount of money that the government receives through its major income source taxation.

As most of us already know the major source of income available to the government of any nation is through the collection of monies through taxation.

Three ways governments use the Fiscal

policy to achieve economic growth:

1. Spending more money: Some government decide to manipulate the fiscal policy by spending more money in area like infrastructure and education in other to boost the economy. For instance a government may decide to spend more money on infrastructure such as construction of roads and buildings in other to have a knock on effect of putting monies into the pocket5s of individuals.

By so doing, such a policy would influence the economy by reducing unemployment and also give the government the opportunity to tax the income of these individuals therefore putting more money into the coffers of the government.

Sometimes this increased expenditure in the economy is most often financed by government borrowing.

2. The government of a nation can also use the Fiscal policy to achieve economic growth by increasing the amount of monies it collects in taxes, and diverting these monies into public spending; one advantage of government using the Fiscal policy this way is that by so doing

the government is effectively diverting money from one part of the economy to another.

When monies are transferred from one part of the economy to another, for instance using the taxation policy of Pay as You Earn (PAYE), the government tends to charge higher taxes to those with higher income, where as those on lower income pay lesser taxes. The government can now use some of these monies or funds to finance public spending in area like construction, which would have a knock on effect of increased employment and more income s for the individuals of the nation.

3. The final way the government can use the Fiscal Policy to achieve economic growth is controlling public spending, thus reduce its expenditure and still maintain a high tax rate. Thus after a lot of injection into the economy by the government the government reduces it expenditure in the economy and retrieves monies injected into the economy. These monies can be used to pay some of government debts, especially if monies were borrowed to finance the initial injection.

 See Also: How to Use Money and Capital Markets Effectively, How to Manage Your Own Business and How to Achieve Economic Growth Using the Monetary Policy

Article Written By FAREED SIDDIQUI

I am an Individual Member of Institute of Management Consultants of India. I am a Professional with a high creative capability based on Business, Management, Financial Accounting, Management Accounting, Finance and Management Consulting Field. I impart part time training and development programs. I write professional articles on business & management, business English and Software Engineering.

Last updated on 25-07-2016 51 0

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