Fiscal policy

The policy of central government regarding taxation of it expenditures is called fiscal policy.

Tools of fiscal policy

            Fiscal policy has the following important tool:

v    Tax

v    Public expenditures

Objectives of fiscal policy of Pakistan 

            The fiscal policy of Pakistan has the following objective:

1.     Price stability

Price stability is an important objective of fiscal policy of Pakistan. Inflation and deflation both of undesirable for the economy. If there is inflation in the economy, then government will adopt tight fiscal policy by increasing taxes and decreasing its expenditures and as a result inflation will be controlled. On the other hand if there is deflation then government adopt lose fiscal policy by decreasing taxes and increasing its expenditures, and as a result deflation will be removed from the economy.

2.     Promotion of employment level

Promotion of employment level is another important objective of fiscal policy of Pakistan. In less developed countries of the world like Pakistan unemployment rate is high; there government should increase its expenditures on public works program like construction of road, college and dam etc. This will generated more and more employment opportunities in the economy which will improve employment rate in the country.

3.     Equal distribution of income

Inequality in distribution of income is not desirable in developing countries like Pakistan the rich is very rich while the poor is very poor, the gap between poor and rich is very high to reduce this gap government should impose progressive tax policy, and the welfare of poor segment of society. Such step of government will reduce the gap between poor and rich and will promote equal distribution of income in the economy.

4.     Economic growth and development

Economic growth and development is another vital objective of fiscal policy o f             Pakistan. If tools of fiscal policy taxes and government expenditures are used effectively, the speed of economic growth and development can be increased and maintained in the economy.

5.     Equilibrium in balance of payment

Equilibrium in balance of payment is very important goal of physical policy of Pakistan. Balance of payment of Pakistan generally remains unfavorable; therefore to correct balance of payment government should impose heavy import duties on luxury and non-essential commodities and should reduce export and export duties. This will encourage export and discourage imports and as a result balance of payment will come to equilibrium position.