The government does not perform any business so it cannot earn money to spend. Hence, the government has to raise the money from the economy to enable it to spend that money in terms of requirements and national priorities. The government raises money primarily through ‘taxes’ and the spending known as ‘public expenditure’. A policy which effects either the manner in which the government raises resource or spends is known as fiscal policy’. The objectives of any fiscal policy of a country’ are as follows:
- The first and foremost objective of fiscal policy in a developing economy is to achieve and maintain full employment in an economy. In such countries, even if full employment is not achieved, the main motto is to avoid unemployment and to achieve a state of near full employment of people.
- There is a general agreement that economic growth and stability are joint objectives for underdeveloped countries. In a developing country, economic instability is manifested in the form of inflation. Prof. Nurkse believed that “inflationary pressures are inherent in the process of investment but the way to stop them is not to stop investment.
- Primarily, fiscal policy in a developing economy, should aim at achieving an accelerated rate of economic growth. But a high rate of economic growth cannot be achieved and maintained without stability in the economy.
- Fiscal measures like taxation and public expenditure programmes, can greatly affect the allocation of resources in various occupations and sectors. As it is true, the national income and per capita income of underdeveloped countries is very low.
- It is needless to emphasize the significance of equitable distribution of income and wealth in a growing economy. Generally, inequality in wealth persists in such countries as in the early stages of growth, it concentrates in few hands.
- Fiscal measures, to a larger extent, promote economic stability in the face of short-run international cyclical fluctuations. These fluctuations cause variations in terms of trade, making the most favourable to the developed and unfavorable to the developing economies.
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