Fiscal policy: advantages and disadvantages of its implementation

Fiscal policy is a state policy in the field of taxation, which should be aimed at achieving the goals related to stimulating economic growth and full employment of the population, as well as addressing the challenges posed by structural, social and regular policies.

As a result of its functioning, significant changes occur in the expenditure and revenue parts of the state budget. These factors can be carried out both automatically and on the basis of changes in the economic situation (without special changes in the legislation), and thanks to the purposeful activities of the two branches of government. It is depending on the use of economic instruments that the types of fiscal policy are divided into discretionary and non-discretionary.

The discretionary policy can be presented in the form of introducing legislative changes in the taxation and system of government spending in order to ensure stability and achieve the basic goals of macroeconomics.

The main instruments of this type include:

- Regulation of tax revenues by changing the number of taxes and their rates. Thus, by changing the tax rate, the state achieves income retention from reduction during a recession or a decline in revenues during a sharp increase in the turnover rate. This tool is also used in the fight against inflation.

- Providing unemployed people with work. Financing of this event is carried out mainly from the state budget.

- Realization of such social programs as payment of old-age and disability pensions , various benefits, subsidies for payment of education, etc. These programs provide stabilization of the economy under various undulations of the country's functioning.

Non-discretionary fiscal policy is based on the relationship between tax revenues and state expenditures with the activity of the business sector, as well as changes in the economic conjuncture. Such interaction is carried out automatically and immediately affects the specific weight of taxes in the revenue side of the budget and the corresponding expenditure on social measures in the expenditure part. This can be illustrated by the example of the personal income tax. After all, with the increase in income under this article, the amount of unemployment benefits is automatically increased. With the observed downturns in the economic processes of the country, the incomes of the population sharply decrease and, accordingly, the tax revenues from salaries to the budget are reduced (income tax is withdrawn on a progressive scale of accrual). As a result of a decrease in tax revenues, a budget deficit appears, which is a companion to the fall in production.

Fiscal policy can be classified and on another basis - stimulating or deterrent. So, the stimulating policy is applied during the general economic recession and assumes sharp reduction of taxes and growth of the state expenses which lead to occurrence of budgetary deficiency. A restraining fiscal policy can be used during high inflation and is associated with an increase in taxation and a reduction in government spending. Based on the results of its implementation, a budget surplus arises that can be used to pay off government debts.

In assessing the effectiveness of the implementation of the policy, there are a number of factors that confirm the limitations of its possible use, namely:

- Sharp fluctuations in the structure of public expenditure (for example, the need to allocate additional funds for state defense, environmental protection and scientific research) do not allow the effective application of both stimulating and deterrent policies;

- high efficiency from the use of fiscal policy instruments can be achieved only in the short term;

- there is a lag effect: due to the need to spend extra time on the adoption of the relevant regulatory document, after the entry into force of which positive results appear only after a certain period.

However, the high efficiency of applying fiscal policy can be achieved in its implementation together with monetary.