Notes And Study Material for Exam Papers

Fiscal policy is the deliberate change in government spending and taxes to stimulate or slow down the economy. In the words of F. R. Glahe “By fiscal policy is meant the regulation of the level of government expenditure and taxation to achieve full employment without inflation in the economy.” J. M. Keynes describes fiscal policy as the steering wheel for the aggregate economy. Main objectives of Fiscal Policy: The objectives of fiscal policy differ with the state of development in the country. In advanced countries of the world, the goal of fiscal policy may be the maintenance of full employment without inflation. In developing countries, the objectives of fiscal policy may be to achieve maximum level of employment and reduction economic inequalities. However, the main objectives of fiscal policy are in brief as under. Removing deflationary gap: J. M. Keynes is of the view that fiscal policy can play a major role in lifting the economy out of depression and closing the ...

The budget of a government is a statement of its finances for a particular year. It indicates how the government or a public body concerned proposes to raise its revenue and incur its expenditure. If the expenditure happens to be in excess of revenue, the government state how the gap is to be met through raising various types of taxes or loans. A government in Pakistan whether federal or provincial has two sections of the budget  (1) Revenue budget (2) Capital budget. The revenue budget is concerned with the current needs and functions of government like defence, civil administration, judicial services, police and beneficent activities in the field of education, health, agriculture etc. The capital budget of the government is concerned with the building of lasting works of a capital nature, like irrigation, canals, dams, roads and other constructions. Major Expenditure Heads of the Federal Budget: As we know Public Expenditure may be (i) Development Expenditure whi...

Direct Tax: A tax is said to be direct when impact and incidence of a tax are on one and same person i.e. when a person on who tax is levied is the same who finally bears the burden of tax. For instance income tax is a direct tax because impact and incidence falls on the same person. Advantages of Direct Tax: Following are advantages of direct tax. 1. Direct taxes afford a greater degree of progression. They are therefore more equitable. 2. They entail less expense on collection and as such are economical. 3. They satisfy canons of certainty, elasticity productivity and simplicity. 4. They create civic consciousness in people. When a person has to bear burden of tax, he takes active interest in affairs of state. Disadvantages of Direct Tax: Disadvantages of direct tax are as follows: 1. It is easy to evade a direct tax than an indirect tax. Tax payer is seldom happy when he pays tax. It pinches him that his hard earned money is being taken by government. So h...

Adam Smith, the father of modern political economy has laid down four principles or canon of taxation in his famous book “Wealth of Nations”. These principles are still considered to be the starting point of sound public finance. Adam Smith’s celebrated canons of taxation are: (1) Canon of equality or ability. (2) Canon of certainty (3) Canon of convenience (4) Canon of economy (5) Other canons. These canons of taxation are described as under. 1)          Canon of equality or ability: Canon of equality or ability is considered to be a very important canon of taxation. By equality we do not mean that people should pay equal amount by way of taxes to the government. By equality is meant equality of all sacrifice, which is people, should pay taxes in proportion to their incomes. This principles point to progressive taxation. It states that the rate of percentage of taxation should increase with increase in income and decrease...

The modern states have to perform multifarious duties for promoting the welfare of their citizens. For the performance of these functions, money is needed. Every government therefore tries to meet its annual expenditures from taxes and from sources other than taxation. The revenue of the state can be classified under the following heads. 1.         Revenue from Private Income: A government derives revenue from citizens by taxation and from other non-tax resources such as fees, prices, special assessments, rates etc. 2.         Irregular Revenue: Under this heading, we include all items such as gifts, penalties, war indemnities etc. 3.         Revenue from State Ownership: A government also obtains incomes from the different assets which it owns. For instance government receives money from state buildings, crown lands, and other productive enterprises such...

The main principles or canons that should govern public expenditure are: The principle of Maximum Social Advantage : The government expenditure should be incurred in such a way that it should benefit the community. The aim of public expenditure is the provision of maximum social advantage. If one section of society or one particular group receives the benefit of the public expenditure at the expense of society, then that expenditure cannot be justified in any way because it does not result in the greatest good to the public. So we can say that public expenditure should secure the maximum social advantage. The Principle of Economy : The principle of the economy requires that the government should spend money in such a manner that all wasteful expenditure is avoided. The economy does not mean miserliness or niggardliness. By economy, we mean that public expenditure should be increased without any extravagance and duplication. If the hard-earned money of the people, collected through...

The role of the state in economic affairs is a complex and controversial topic. The political thinkers are divided about the extent and mode of state interference in economic activity. The Anarchists hold the view that a day will come when people will be lifted so much morally that there would be no need of government at all. The society will be so much conscious of its duties that it will regulate its affairs itself. The view of the Anarchists seems to be only a dream and wishful thinking and is not likely to be realized at any stage. The Mercentillists believe that the state should actively participate in the social and economic spheres. The Physiocrates were the view that the state should not impose any artificial barriers on individual’s economic behaviour. They believe in the law of Nature. Adam Smith, the father of Political Economy, believes that the state should not interfere in the internal economic life of the citizens of a country as it hampers economic progress. H...