Fiscal policy, its goals and instruments. Concept and tools of fiscal policy
44. Fiscal policy: goals, tools, types.
Fiscal policy represents government measures to stabilize the economy by changing the amount of income and (or) expenditures of the state budget.
Fiscal policy goals like any stabilization policy aimed at smoothing out cyclical fluctuations in the economy, are:
ensuring stable economic growth;
ensuring full employment of labor resources - solving the problem of unemployment;
ensuring a stable price level is a solution to the problem of inflation.
Fiscal policy instruments are the expenses and revenues of the state budget, namely: government procurement; taxes; transfers (these are payments not related to the purchase of goods and services).
Depending on the mode of operation of fiscal policy instruments, it is divided into non-discretionary and discretionary policies. Non-discretionary policy called the policy of “built-in stabilizers.” These stabilizers are: a progressive taxation system, indirect taxes, and various transfer benefits. At the same time, the amounts of receipts and payments automatically change if the situation in the economy changes.
Discretionary policy is a conscious change in taxes and government spending by the legislature to ensure macroeconomic stability and achieve macroeconomic goals. The main instruments of discretionary fiscal policy are:
changing the volume of tax withdrawals by introducing or eliminating taxes or changing the tax rate;
implementation, at the expense of the state budget, of employment programs aimed at providing employment to the unemployed;
implementation of social programs, which include the payment of old-age benefits, disability benefits, benefits for low-income families, education expenses, etc. These programs help maintain aggregate demand and stabilize economic development when incomes decline and need increases.
Depending on the state of the economy and the government’s goals, fiscal policy is divided into:
stimulating, carried out with the aim of overcoming the recession and involving an increase in government spending and a reduction in taxes;
contractionary, designed to limit the cyclical recovery and involves cutting government spending and increasing taxes.
45. Main types of expenses and revenues of the state budget. Types of state budget states. State budget deficit and methods of financing it. Public debt, its types and consequences.
State budget- a document describing the income and expenses of a particular state, usually for the year (from January 1 to December 31).
State budget revenues:
Taxes on income of legal entities and individuals
Revenues from the real sector (income tax)
Receipt of indirect taxes and excise taxes
Duties and non-tax charges
Regional and local taxes
State budget expenditures:
Law enforcement
Healthcare
Industry
Social policy
Agriculture
Public Administration
International activities
The state budget can be in three different states:
1) when budget revenues exceed expenses (T > G), budget balance is positive, which corresponds to surplus (or surplus) state budget
2) when income is equal to expenses (G = T), budget balance is zero, i.e. the budget is balanced
3) when budget revenues are less than expenses (T< G), negative budget balance, i.e. takes place deficit state budget.
Sources of financing the budget deficit
Internal financing:
issue and sale of securities (bonds and bills)
budget loans received from budgets of other levels
use of central bank funds
External funding:
sale of securities on the global financial market
loans from foreign banks and international financial organizations
loans from foreign governments.
National debt represents the sum of accumulated budget deficits, adjusted by the amount of budget surpluses.
There are two types government debt: 1) internal, which arises as a result of the government’s issue of securities (bonds); 2) external, resulting from loans from other countries and international financial organizations. Both types government debt were discussed above. The presence of significant government debt firstly, it reduces the efficiency of the economy, since it involves the diversion of funds from the production sector both for maintenance and payment debt; secondly, it redistributes income from the private sector to state; thirdly, it causes crowding out of investments in the short term, which in long term in the long term may lead to a reduction in the capital stock and a decrease in the country's productive potential, to a currency crisis and high inflation; fourth, imposes the burden of payment debt for future generations, which may contribute to a decline in their level of well-being.
Along with taxes the most important tool, the impact of the state on economic development are government expenditures. Through the system of expenditures, a significant part of the national income is redistributed, and the economic and social policies of the state are implemented. All expenses can be divided into the following groups:
Military;
Economic;
For social purposes;
For foreign economic and foreign policy activities;
Taxes and government spending are basic tools fiscal policy. Fiscal (fiscal policy) is a system of regulating the economy through changes in government spending and taxes.
Distinguish discretionary And automatic form of fiscal policy. Discretionary policy is understood as “maneuvering taxes and government spending in order to change the real volume of national production, control the level of employment and the rate of inflation. This form of fiscal policy is opposed to its automatic form. “Automation” is “built-in stability” based on the provision of budgetary funds by the tax system income depending on the level of economic activity.
Automatic fiscal policy. Its built-in stabilizers, such as income taxes, unemployment benefits, expenses for worker retraining programs, etc., are in principle necessary; they reduce the amplitude of fluctuations during the economic cycle. For example, if the economy is in a recession, the marginal tax rate decreases due to a decrease in income subject to tax; disposable income will also be smaller because social benefits will increase. At the same time, disposable income is reduced to a lesser extent compared to pre-tax income. The marginal capacity to consume increases in an economic downturn because those receiving unemployment benefits use almost all of it for consumption. When the economy is booming, disposable income does not increase at the same rate as total pre-tax income because tax rates rise and social benefits fall. Another benefit of automatic stabilizers is that they reduce income inequality. Progressive income taxes and transfer payments are tools for redistributing income to the poor. In addition, the stabilizers are already built into the system; no legislative or executive decision is required to put them into effect.
Discretionary fiscal policy includes regulation of government spending and taxes in order to eliminate cyclical fluctuations in output and employment, stabilize price levels, and stimulate economic growth. In the United States, the Employment Act of 1946 and the Lumphrey-Hawkins Act of 1978 make the federal government responsible for achieving full employment through the use of monetary and fiscal policies. This task is extremely difficult for many reasons, not least because public funds are spent on many programs, not just economic stabilization and economic growth, for example, social welfare programs, strengthening the country's road network, flood control , improving education, replacing old and dangerous bridges, environmental protection, basic research.
Fiscal policy instruments. The set of fiscal policy instruments includes government subsidies, manipulation of various types of taxes (personal income tax, corporate tax, excise taxes) by changing tax rates or lump-sum taxes. In addition, fiscal policy instruments include transfer payments and other types of government spending. Different instruments have different effects on the economy. For example, an increase in the lump sum tax leads to a decrease in total spending, but does not lead to a change in the multiplier, while an increase in personal income tax rates will cause a decrease in both total spending and the multiplier. The choice of different types of taxes - personal income tax, corporate tax or excise tax - as an instrument of influence has different effects on the economy, including incentives that influence economic growth and economic efficiency. The choice of a particular type of government spending is also important, since in each case the multiplier effect may be different. For example, there is a consensus among economic policymakers that defense spending provides a lower multiplier than other types of government spending.
Of course, economic policymakers don't just look at different fiscal policy instruments; when they try to increase or decrease output, they also look at the impact of monetary policy.
Transfer payments. Transfer payments have a lower multiplier than other government expenditures because part of these amounts is saved. The transfer payment multiplier is equal to the government spending multiplier times marginal consumption capacity. The advantage of transfer payments is that they can be directed to specific groups of the population.
Tax reduction. The effect of cutting taxes is in some ways similar to increasing government spending. Aggregate demand will rise, interest rates will rise, and there may be a decline in private sector investment. However, the impact on consumer spending will be large. Tax cuts will raise the multiplier, reducing the effect of any increase in aggregate demand.
The type of tax, such as personal income tax, corporate tax, sales tax, real estate tax, excise tax, etc., is important as each will have different effects on the economy, including stimulating economic growth and economic efficiency. For example, a personal income tax or a corporate tax may reduce interest in innovation and the desire to work overtime, while a sales tax has no effect.
An increase in the lump sum tax will reduce aggregate spending but will not cause a change in the multiplier, while an increase in the personal income tax rate will lead to a decrease in consumer spending and a decrease in the multiplier.
Both discretionary and automatic fiscal policies play an important role in government stabilization efforts, but neither one nor the other is a panacea for all economic ills. As for automatic policy, its built-in stabilizers can only limit the scope and depth of fluctuations in the economic cycle, but they are not able to completely eliminate these fluctuations.
Even more problems arise when pursuing discretionary fiscal policy. These include:
The presence of a time lag between decisions and their impact on the economy;
Administrative delays;
Addiction to incentive measures (tax cuts are a politically popular measure, but tax increases can cost parliamentarians less; the most reasonable use of tools of both automatic and discretionary policies can significantly influence the dynamics of social production and employment, reduce inflation rates and resolve other economic problems.
In macroeconomics there is no unambiguous formulation of the term fiscal policy; there are many definitions:
- - Fiscal policy is the formation of the state budget through the taxation system and the manipulation of state budget funds to achieve set goals (increase in production, employment, reduction in inflation);
- - State fiscal policy is a system of regulating the economy through government spending and taxes, i.e. it comes down to the manipulation of taxes and government spending;
- - Fiscal policy is a set of financial measures of the state to regulate government revenues and expenses.
Under fiscal policy states refers to the constant intervention of the state in economic processes and phenomena in order to regulate their course. This is a set of measures in the field of taxation aimed at generating revenue from the state budget, increasing the efficiency of the entire national economy, ensuring economic growth, employment and stability of monetary circulation. Fiscal policy is a system of regulating the economy through changes in government spending and taxes. Taxes and government spending are the main instruments of fiscal policy. Fiscal policy can have both beneficial and quite painful effects on the stability of the national economy.
The concept of fiscal policy as a real instrument of state regulation of the economy is associated with the name of J.M. Keynes and Keynesians (A. Pigou, R. Harrod, E. Hansen). From the point of view of Keynesian theory, the essence of fiscal policy is to manage aggregate demand for certain purposes through the manipulation of taxes, transfers and government purchases. J.M. Keynes and his supporters gave and continue to give fiscal policy a dominant role in influencing economic growth, employment levels and price dynamics.
The need for the development and systematic conduct of fiscal policy intensified, especially in the second half of the 20th century, when state finances began to play a significant role in ensuring stable economic growth.
Fiscal policy changes significantly depending on such strategic objectives as, for example, anti-crisis regulation, ensuring high employment, and fighting inflation.
Fiscal policy has its advantages and disadvantages:
The advantages of fiscal policy include:
- 1. Multiplier effect. All fiscal policy instruments, as we have seen, have a multiplier effect on the value of equilibrium aggregate output.
- 2. No external lag (delay). External lag is the period of time between the decision to change a policy and the appearance of the first results of its change. When the government decides to change fiscal policy instruments, and these measures come into effect, the result of their impact on the economy manifests itself quite quickly. (As we will see in Chapter 13, an external lag is characteristic of monetary policy that has a complex transmission mechanism (monetary transmission mechanism)).
- 3. Availability of automatic stabilizers. Since these stabilizers are built-in, the government does not need to take special measures to stabilize the economy. Stabilization (smoothing out cyclical fluctuations in the economy) occurs automatically.
The disadvantages of fiscal policy include:
- 1. Displacement effect. The economic meaning of this effect is as follows: an increase in budget expenditures during a recession (increase in government purchases and/or transfers) and/or a reduction in budget revenues (taxes) leads to a multiplier growth of total income, which increases the demand for money and increases the interest rate on money market (loan price). And since loans are primarily taken out by firms, an increase in the cost of loans leads to a reduction in private investment, i.e. to “crowding out” part of the investment expenditures of firms, which leads to a reduction in output. Thus, part of total output is “crowded out” (underproduced) due to a reduction in private investment spending as a result of rising interest rates due to the government's expansionary fiscal policy.
- 2. Presence of internal lag. The internal lag is the period of time between the need to change a policy and the decision to change it. Decisions on changing fiscal policy instruments are made by the government, but their implementation is impossible without discussion and approval of these decisions by the legislative body (Parliament, Congress, State Duma, etc.), i.e. giving them the force of law. These discussions and agreements may require a long period of time. In addition, they come into effect only from the next financial year, which further increases the lag. During this period of time, the economic situation may change.
So, if initially there was a recession in the economy, and stimulating fiscal policy measures were developed, then at the moment they begin to take effect, the economy may already begin to recover. As a result, additional stimulation may lead the economy to overheat and provoke inflation, i.e. have a destabilizing effect on the economy. Conversely, contractionary fiscal policies designed during a boom may, due to the presence of a long internal lag, worsen a recession.
- 3. Uncertainty. This shortcoming is characteristic not only of fiscal, but also of monetary policy. The uncertainty concerns:
- - problems of identifying the economic situation It is often difficult to accurately determine, for example, the moment when a period of recession ends and recovery begins, or the moment when a recovery turns into overheating, etc. Meanwhile, since at different phases of the cycle it is necessary to apply different types of policies (stimulating or restrictive), an error in determining the economic situation and choosing the type of economic policy based on such an assessment can lead to destabilization of the economy;
- - the problem of exactly how much the instruments of public policy should be changed in each given economic situation. Even if the economic situation is determined correctly, it is difficult to determine exactly how much, for example, government purchases need to be increased or taxes cut in order to ensure an economic recovery and reach the potential output, but not exceed it, i.e. How to prevent overheating and acceleration of inflation. And vice versa, when implementing a contractionary fiscal policy, how not to lead the economy into a state of depression.
- 4. Budget deficit. Opponents of Keynesian methods of regulating the economy are monetarists, supporters of supply-side economics and rational expectations theory - i.e. Representatives of the neoclassical trend in economic theory consider the state budget deficit to be one of the most important shortcomings of fiscal policy. Indeed, the instruments of stimulating fiscal policy, carried out during a recession and aimed at increasing aggregate demand, are an increase in government purchases and transfers, i.e. budget expenditures, and tax reduction, i.e. budget revenues, which leads to an increase in the state budget deficit.
It is no coincidence that the recipes for government regulation of the economy that Keynes proposed were called “deficit financing.” The problem of the budget deficit became especially acute in most developed countries that used Keynesian methods of regulating the economy after World War II, in the mid-70s, and in the United States the so-called “twin debts” arose, in which the government deficit The budget was combined with a balance of payments deficit. In this regard, the problem of financing the state budget deficit has become one of the most important macroeconomic problems.
Fiscal policy goals:
- - elimination of unemployment;
- - fight against inflation;
- - stabilization of economic growth;
- - stimulation of economic growth;
- - achieving a high level of employment at moderate rates of inflation.
The most important task of fiscal policy is to attract monetary resources and the formation of centralized state funds that allow the implementation of economic policy.
Fiscal policy includes direct and indirect methods of regulating the economy. Direct methods include methods of budget regulation. Using indirect methods, the state influences the financial capabilities of goods producers and the size of consumer demand. The taxation system plays an important role here. By changing tax rates on various types of income, providing tax breaks, and reducing the tax-free minimum income, the state strives to achieve the most sustainable rates of economic growth and avoid sharp ups and downs in production.
Depending on the nature of the use of direct and indirect financial methods, two types of state fiscal policy are distinguished: discretionary and non-discretionary.
Discretionary fiscal policy is the deliberate manipulation of taxes and government (public) spending to change real national output and employment, control inflation, and accelerate economic growth.
The most common ways and means of implementing discretionary fiscal policy include public works, financial assistance programs, changes in tax rates and other similar instruments of influence.
Involving the unemployed in performing public works with payment at state expense serves as an operational means of combating sharply increasing unemployment. During a period of aggravation of the social situation caused by the impoverishment of certain groups of citizens, along with such automatic stabilizers as benefits provided by law, the government resorts to providing material assistance, increasing benefits, and additional payments. To prevent an unexpected sharp decline in the income of enterprises and citizens, tax rates are temporarily reduced and partial benefits are introduced.
The state employment program is one of the measures to combat unemployment and stabilize the economy. This program is being implemented at the expense of the state and local authorities. Of course, this employment program can be modified. Thus, to increase employment, small enterprises that provide maximum employment in their production can be encouraged. This practice is used in China.
Discretionary fiscal policy is implemented through government purchases of goods and services, government transfers and taxes. A change in their values leads to a change in total expenses.
The nature of discretionary fiscal policy is greatly influenced by the state of the economy. When implementing this policy, the following quantitative relationships between financial variables are taken into account:
- 1) an increase in government spending increases aggregate demand (consumption and investment). As a result, output and employment of the working population increases:
- 2) shows that an increase in taxes reduces personal income of households.
In this case, demand and output and labor force employment are reduced. And vice versa: lower taxes lead to increased consumer spending, output and employment.
Non-discretionary fiscal policy assumes an automatic change in net tax revenues to the state budget during periods of changes in national production volumes. To some extent, changes in government spending and taxes are introduced automatically. This includes a progressive tax system, a system of government transfers (unemployment insurance), and a profit-sharing system.
Non-discretionary fiscal policy is carried out automatically using so-called built-in stabilizers. Automatic (built-in) stabilizers are mechanisms of a market economy that do not depend on state policy, smoothing out downturns and upturns in the economy. The essence of built-in stabilizers is to link tax rates to the amount of income received. Almost all taxes are structured in such a way as to ensure an increase in tax revenues with an increase in net national product. This applies to personal income tax, which is progressive in nature; income tax; for added value; sales tax, excise tax.
Fiscal policy in the state is carried out using its own instruments. Instruments of the state's fiscal policy are economic mechanisms with the help of which the goals set for fiscal policy are achieved.
The set of fiscal policy instruments includes government subsidies, manipulation of various types of taxes (personal income tax, corporate tax, excise taxes) by changing tax rates or lump-sum taxes. In addition, fiscal policy instruments include transfer payments and other types of government spending. Different instruments have different effects on the economy.
For example, an increase in the lump sum tax leads to a decrease in total spending, but does not lead to a change in the multiplier, while an increase in personal income tax rates will cause a decrease in both total spending and the multiplier.
The choice of different types of taxes - personal income tax, corporate tax or excise tax - as an instrument of influence has different effects on the economy, including incentives that influence economic growth and economic efficiency. The choice of a particular type of government spending is also important, since in each case the multiplier effect may be different.
For example, there is a consensus among economic policymakers that defense spending provides a lower multiplier than other types of government spending.
Depending on the phase of the cycle in which the economy is located and the type of fiscal policy corresponding to it, the government’s fiscal policy instruments are used differently.
Thus, the instruments of stimulating fiscal policy are:
- - increase in government procurement;
- - tax reduction;
- - increase in transfers.
The instruments of contractionary fiscal policy are:
- - reduction in government procurement;
- - increase in taxes;
- - reduction of transfers.
A slightly different list of fiscal policy instruments is presented in the textbook “Economics” by academician G.P. Zhuravleva. According to this body of literature, the instruments of discretionary fiscal policy are public works, changes in transfer payments, and manipulation of tax rates.
The author of this textbook includes changes in tax revenues, unemployment benefits and other social payments, and subsidies to farmers as instruments of automatic fiscal policy.
Analyzing the literature sources, we can come to the conclusion that the main instruments of fiscal policy are changes in taxes and transfer payments.
One of the main instruments of fiscal policy is taxes, representing funds forcibly withdrawn by the state or local authorities from individuals and legal entities necessary for the state to carry out its functions.
Taxes perform three main functions:
- - fiscal, which consists in collecting funds to create state funds and material conditions for the functioning of the state;
- - economic, which involves the use of taxes as a tool for redistributing national income, influencing the expansion or containment of production, stimulating producers in the development of various types of economic activities;
- - social, aimed at maintaining social balance by changing the ratio between the incomes of individual social groups in order to smooth out inequality between them.
In a modern economy, there are different types of taxes.
Direct taxes are taxes on the income or property of taxpayers. In turn, direct taxes are divided into:
- - real, which became most widespread in the first half of the 19th century, and which include land tax, house tax, trade tax, and securities tax;
- - personal, including income taxes, taxes on corporate profits, capital gains, and excess profits.
Indirect taxes consist of excise taxes, value added taxes, sales taxes, turnover taxes, and customs duties.
Depending on the authority at whose disposal certain taxes are received, state and local taxes are distinguished. In Russian conditions, these are federal, federal, and local taxes.
Depending on the use, taxes are divided into:
- - general, intended to finance current and capital expenditures of the budget, without being assigned to any specific type of expenditure;
- - special, having a specific purpose
Depending on the nature of the rates, taxes are distinguished:
- - firm (fixed), established in an absolute amount per unit of taxation, regardless of various economic indicators related to business activity;
- - regressive, in which the percentage of income withdrawal decreases as income increases;
- - proportional, manifested in the fact that regardless of the amount of income, the same rates apply;
- - progressive, in which the percentage of withdrawal increases as income increases.
Such an instrument of state fiscal policy as taxes is closely related to another instrument of fiscal policy - government spending. Funds withdrawn in the form of taxes go to the state budget, subsequently spent on various state purposes. Under the current legislation of the Russian Federation, the main part of the budget is filled through payments from taxpayers - legal entities.
Currently, the point of view about the need for additional significant reductions in tax rates on basic taxes has become widespread. To justify this, the authors point out that, despite a temporary drop in tax revenues, in the long term, investment conditions will improve, the production of goods and services will increase, employment will increase and, due to the growth of the tax base, state revenues will begin to grow.
State or government spending refers to the costs of maintaining the institution of the state, as well as government purchases of goods and services.
Government procurement of goods and services can be of various types: from the construction at the expense of the budget of schools, medical institutions, roads, cultural objects to the purchase of agricultural products, military equipment, and samples of unique products. This also includes foreign trade purchases. The main distinguishing feature of all these purchases is that the state itself is the consumer. Usually speaking about public procurement, they are divided into two types: procurement for the state’s own consumption, which is more or less stable, and procurement for market regulation.
The state increases its purchases during recessions and crises and reduces them during booms and inflation in order to maintain production stability. At the same time, these actions are aimed at regulating the market, maintaining a balance between supply and demand. This goal constitutes one of the most important macroeconomic functions of the state.
Government spending plays a significant role in the socio-economic development of society. Hence, they are objectively necessary and at the same time, exceeding reasonable limits can lead to financial instability in the national economy and excessive state budget deficit.
Government spending takes the form of:
- - government orders, which are distributed on a competitive basis;
- - construction at the expense of capital investments;
- - expenses for defense, management, etc.
The bulk of government spending passes through the state budget, which includes the budgets of the federal government and local authorities.
The state budget is an annual plan of government expenditures and sources of financial coverage (income). In modern conditions, the budget is also a powerful lever for state regulation of the economy, influencing the economic situation, as well as implementing anti-crisis measures.
The state budget is a centralized fund of monetary resources that the government of the country has at its disposal to maintain the state apparatus, the armed forces, and also perform the necessary socio-economic functions.
Expenditures indicate the direction and purpose of budgetary allocations and perform political, social and economic regulatory functions. They are always targeted and, as a rule, irrevocable. The irrevocable provision of public funds from the budget for targeted development is called budget financing. This mode of spending financial resources differs from bank lending, which assumes the repayable nature of the loan. It should be noted that the irrevocability of the provision of financial resources does not mean arbitrariness in their use.
Whenever financing is applied, the state develops the procedure and conditions for using the money for the intended purpose and ensuring overall economic growth and improving the lives of the population.
The structure of government spending in each country has its own characteristics. They are determined not only by national traditions, the organization of education and health care, but mainly by the nature of the administrative system, structural features of the economy, the development of defense industries, the size of the army, etc.
Government transfers, being one of the instruments of fiscal policy, are payments from government bodies that are not related to the movement of goods and services. They redistribute government revenue collected from taxpayers through benefits, pensions, social security payments, etc.
Transfer payments have a lower multiplier than other government expenditures because part of these amounts is saved. The transfer payment multiplier is equal to the government spending multiplier times marginal consumption capacity. The advantage of transfer payments is that they can be directed to specific groups of the population. Social transfers (pensions, scholarships, various benefits) are included in the average income, and these payments can increase the family budget by 10-12%.
Fiscal policy instruments influence the economic situation in their own way, helping to achieve the goals set for fiscal policy. The main instruments of the state's fiscal policy are changes in taxes and transfer payments. Fiscal policy instruments are interconnected and their role in the implementation of one or another state policy is great.
Fiscal policy is a policy that involves using the government’s capabilities: levying taxes and spending funds from the state budget to regulate the level of business activity and solve various social problems.
This is the government's policy in the field of government spending and taxes.
This policy carried out by legislative bodies, because they control taxation and the state budget.
Main goals of fiscal policy:
1. Smoothing out economic cycle fluctuations.
2. Stabilization of economic growth rates.
3. Achieving a high level of employment.
4. Decrease in inflation rates.
Basic tools:
1. Government spending.
2. Taxes.
Depending on the nature of the use of direct and indirect financial
methods, economic science distinguishes two types of fiscal policy
states:
Discretionary;
Non-discretionary.
Fiscal policy instruments are used by the state to influence aggregate demand and aggregate supply, thereby influencing the general economic situation, contribute to the stabilization of the economic situation, and carry out countercyclical measures to counteract excessive fluctuations in economic parameters that threaten the emergence of crisis phenomena.
41.Varieties of fiscal policy. Features of fiscal policy in the Republic of Belarus
The state's fiscal policy is the government's targeted actions to mobilize and rationally use monetary resources in order to solve the problems of the country's socio-economic development.
Depending on the impact on aggregate demand in the economy. Fiscal policy can be divided into: stimulating and contractionary. If the economic system is in a state of recession, then there is a need for stimulating policies; contractionary policies are aimed at combating demand-side inflation.
Discretionary (active) fiscal policy is understood as a deliberate change by the government in government spending and taxes. It can be carried out using both direct and indirect tools. The first include changes in government purchases of equipment and supplies, and transfer payments. The second includes changes in taxation (tax rates, tax benefits, tax base).
Let us consider the mechanism of discretionary fiscal policy using the Keynesian model of macroeconomic equilibrium. Under the following assumptions (state spending does not affect either (C) or (I); X n=0; P -const; T -no; fiscal policy affects AD, but not AS). Taking these assumptions into account, let us consider the impact of changes in government spending on the volume of total income. Fig.1
State cartoonist Expenses are calculated using the formula:
M G =(delta Y(delta GDP))/(delta G)
The formula for the government spending multiplier is similar to the formula for the investment multiplier. Therefore M G =1/1-MPC=1/MPS
Economic growth is an increase in the volume of production in the national economy over a certain period of time (usually a year).
Economic growth is defined in two ways:
1) as a progressive increase in the real volume of VVTs, GNI or NNI due to an increase in the volume of economic resources used and (or) their better use without disturbing the equilibrium in short-term periods;
2) as real GDP growth (GNI or NNI) per capita.
There are three types of economic growth:
Extensive, carried out by increasing the volume of resources used in the production process;
Intensive, carried out through more efficient, more productive use of resources based on scientific and technological progress and better forms of organization of production;
Mixed, combining intensive and extensive types.
Since in the economy, as in other systems, there are almost no pure forms, economic growth can be considered mixed. Depending on which factors prevail, we can talk about a predominantly intensive or predominantly extensive type.
The following indicators are used to measure economic growth:
1. Absolute increase in real production volume, determined by the formula
Conventionally, all factors of economic growth are divided into three groups:
1) demand factors that ensure an increase in total costs, which contributes to an increase in production volumes and income;
2) supply factors, which are decisive in most models, have a complex structure, which includes: natural resources in their quantitative and qualitative terms; volume and quality of capital; quantity and quality of labor resources; technological level; institutional factors; information support; organizational factors, etc.;
3) distribution factors relating to both the distribution of resources, which significantly affects aggregate supply, and the distribution of produced domestic (national) product and income, which affects aggregate demand.
The sources of economic growth are:
Economic resources offered on the market by their owners;
Increase in resource productivity based on the development of scientific and technological progress.
44.Theoretical models of economic growth (E. Domara, R. Harrod, R. Solow). Problems of economic growth in the Republic of Belarus
The Solow model or Solow-Swan model is a neoclassical model of economic growth by Robert Solow, based on a neoclassical production function (for example, the Cobb-Douglas production function) taking into account exogenous neutral technical progress as a factor of economic growth along with such factors of production as labor and capital.
Essence of the model
Income is spent on consumption and investment, respectively, the identity of income , or in specific terms per unit of labor with constant efficiency - . Investments are equal to savings or per unit of labor resources, where is the savings rate. A constant rate of capital depreciation is assumed and, accordingly, the capital dynamics model has the form:
or in specific representation:
On the other hand, given that by definition we have:
Therefore, we can finally write down the basic differential equation of the Solow model:
where is the growth rate of population (workers); - rate of technical progress;
Thus, if investment is less than the required level 
, taking into account population growth and depreciation of capital and technical progress, then the capital-labor ratio falls with constant efficiency and vice versa. The equilibrium level is determined based on the stability condition, that is. Accordingly, the stationarity condition is as follows (coincidence of actual and necessary investments):
In the Solow model, in a steady state, the growth rate of labor productivity is equal to the rate of technical progress, and the rate of economic growth is the sum of the rate of technical progress and the rate of population growth.
As the saving rate increases, investment begins to exceed the required level and begins to grow until equilibrium is reached at a higher level. In the process of transition to a new steady state, the rate of growth of labor productivity will outstrip the rate of technical progress, and when a new equilibrium is reached, they will become equal.
The Harrod-Domar model serves as an auxiliary tool when considering the problem of economic growth in the long run.
Model formula:
- G is the desired rate of economic growth;
- C - capital-output ratio (capital intensity ratio);
- S is the share of savings in national income.
The greater the net saving (S), the greater the investment, and hence the higher the growth rate. The higher the capital intensity C=K/Y, the lower the economic growth rate.
Using data on basic economic parameters, it is possible to predict the expected rates of economic growth for the future. The actual growth rates will differ from the calculated ones, but the differences will not be so significant if for the forecast period the share of savings in national income S remains constant and the capital intensity ratio C remains constant. At high rates of economic growth, the capital intensity ratio will stimulate this growth. In a depressed environment, declining growth rates will be insufficient to maintain the desired rate of investment.
The Harrod-Domar model helps to imagine what the economic growth curve will look like not in the short term, but in the long term. The model describes what conditions are necessary to maintain constant and relatively uniform growth.
The Domar economic growth model is a simple Keyesian model of economic growth that examines the dual role of investment in increasing aggregate demand and increasing the productive capacity of aggregate supply over time.
In the economic literature, the economic growth model of the American economist E. D. Domar and the model of the English economist R. F. Harrod are often considered together as one model, called the Harrod-Domar model. However, despite their similarities, they differ significantly from each other both in the object of study and in their economic significance.
Domar did not set out to systematically develop a theory of economic growth. His goal was to raise the problem of full employment in the long term. E. Domar's main contribution to the theory of economic growth is that he drew attention to the need to take into account both elements of investment (multiplier and accelerator).
Domar's model is the main starting point for modern economic growth theory.
E. Domar's model, proposed in the late 40s. XX century, was based on the following premises:
a) production technology is represented in it by the Leontiev production function;
b) there is an excess supply in the labor market caused by price inflexibility;
c) there is no capital outflow, the C/L ratio and the savings rate are stable;
d) output depends on only one resource - capital;
e) the market for goods is balanced;
e) the investment lag is zero.
Investment spending, being an element of aggregate demand, increases overall demand.
Denoting the increase in investment through ΔI, we find that income (ΔY) will be ΔY=ΔI/a y, where a y is the marginal propensity to save.
In the short period, Domar's model does not take into account that an increase in investment leads to an increase in production capacity, the effect of which is small in the short period, but in the long period, when economic growth manifests itself, its role in the growth of production capacity should be taken into account.
To the question: if investment increases production capacity and leads to additional income, then how much should investment increase so that the rate of increase in income is equal to the rate of increase in production capacity? Domar responded with an equation in which one part is represented by the rate of increase in production capacity, and the other part by the rate of increase in income. Solving this equation made it possible to determine the desired growth rate.
45.Social sustainability and social policy
Social sustainability is a state of society and its citizens that is characterized by the stability of their economic and social situation, as well as the ability to self-sufficiency in the reproduction of their life activities.
The forms of manifestation of social sustainability are:
Lack of polarization of income and position of different social groups of the population;
Sufficiency of income of all segments of the population for self-sufficiency in the reproduction of their lives;
Availability of social guarantees;
Reliability of social protection;
Lack of social conflicts.
In this understanding, social sustainability is the main criterion for the sociality of a market economy.
To ensure social sustainability, society needs a developed social sphere, which is a set of material and legal conditions, as well as economic relations and industries that reflect and realize the interests of different social groups of a given society.
The most important principles of its use in a socially oriented economy are the following three:
1) social equality (or social parity) of citizens before all laws, in national and other relations, religion, etc.:;
2) social solidarity, understood as general mutual support based on the commonality of the main goals of all citizens of a given country;
3) social justice, considered in general as a relationship of symmetry (or adequacy) in the life of society and its social groups. (For example, the correspondence of rights and responsibilities; the adequacy of the practical contribution to the real situation of a person, etc.)
Social policy - policy in the field of social development and social security; a system of activities carried out by a business entity (usually the state) aimed at improving the quality and standard of living of certain social groups, as well as the scope of studying issues related to such policies, including historical, economic, political, socio-legal and sociological aspects, as well as examination of cause-and-effect relationships in the field of social issues. At the same time, it should be borne in mind that there is no established opinion as to what should be understood by the expression “social policy”. Thus, this term is often used in the sense of social administration in relation to those institutionalized (that is, enshrined in legal and organizational terms) social services that are provided by the state. Some authors consider this use of the term to be erroneous.
More often, social policy in the applied, practical sense (context) is understood as a set (system) of specific measures and activities aimed at supporting the livelihoods of the population. Depending on who these measures come from and who their main initiator (subject) is, the corresponding types of social policy are distinguished - state (federal), regional, municipal, corporate, etc. In a broad sense and from a scientific point of view, this is not so much a system of measures and activities as a system of relationships and interactions between social groups, social strata of society, in the center of which is their main ultimate goal - a person, his well-being, social protection and social development, life support and social security of the population as a whole.
The traditional areas of social policy are the following: education, health care, housing and social insurance (including pensions and individual social services).
46.Employment policy
The inability of the labor market, with its imperfect type, to independently, automatically self-regulate causes the need for its adjustment. The subject of such actions becomes the state. To achieve this, it pursues a special employment policy, which means a system of principles and measures aimed at promoting rational, freely chosen employment of the population and preventing unemployment.
Based on the Law on Employment, the principles of state policy in the field of employment in the Republic of Belarus are recognized as follows:
Ensuring equal employment opportunities for all able-bodied citizens of the Republic of Belarus;
Ensuring measures aimed at preventing unemployment;
Providing social guarantees and compensation to the unemployed;
Assistance and encouragement of citizens in developing their abilities for productive and creative work;
Taking measures to assist in the employment of citizens with limited ability to work;
Participation of trade unions and entrepreneurs' unions in solving employment problems in interaction with government bodies;
International cooperation in solving employment problems.
In accordance with the basic principles, the Employment Program has been developed and approved by the government of the Republic of Belarus, aimed at the practical implementation of employment policy. The main goal of the Program is to ensure the promotion of rational, freely chosen employment of citizens of the Republic of Belarus. Achieving this goal involves solving the following tasks:
Providing financial assistance in the employment of citizens;
Material support for the unemployed population;
Vocational training and retraining of the unemployed population;
Reservation, quotas and creation of jobs at existing enterprises for citizens who are not able to compete on equal terms in the labor market;
Promoting entrepreneurship and self-employment as sources of creating new jobs;
Development of a republican employment service that provides computerized accounting of labor supply and demand by category of citizens.
The employment program is structured with specification by year. Its main guidelines are based on real phenomena occurring in the sphere of employment of the population of the Republic of Belarus. In this regard, the Program provides:
Real assistance in finding employment;
Referral for training and retraining with payment of scholarships;
Providing financial assistance for unemployment.
In addition, for the employment of persons who are unable to compete on equal terms in the labor market (disabled people, youth, etc.), the Program provides for the creation of jobs in enterprises and organizations with partial compensation of costs from the state employment service. This also includes the creation of specialized small enterprises for people with disabilities, as well as for youth under the employment service.
State programs to promote and subsidize employment since the 80s are not uncommon for countries with developed market economies. As a rule, they are adopted on the basis of social partnership between the state, entrepreneurs and trade unions. The main ways of financially incentivizing employers to participate in increasing employment are:
Refund of part of taxes;
Establishment of income tax benefits;
Providing preferential loans, etc.
47.Policy of regulation of income of the population. Lorenz curve
The state, through tax, budget, credit and administrative measures, redistributes income in order to increase defense capability, protect public order, develop science, culture, education, ensure effective employment, and support the disabled part of the population. The real capabilities of the state in redistributing income and financing the public sector depend on a number of objective socio-economic conditions:
The size of the gross domestic product (GDP), its dynamics and structure;
Purchasing power of the national currency;
Demographic trends;
Traditionally established functions of state regulation, administrative-territorial structure of government bodies and powers of each level of government;
Share of the shadow economy in GDP.
In a market economy, the state combines measures of direct and indirect regulation of income and wages. Direct regulatory measures include:
Establishing tax rates for individuals, minimum social standards, tariffs for housing and communal services and transport services for the population;
Unified wage scale for public sector workers;
Approval of the size, procedure for accrual and calculation of pensions and benefits;
Streamlining the system of providing benefits and compensation;
Indexation of income and savings.
Measures of indirect regulation of income and wages include:
Issue of money;
Control over inflation and exchange rates;
Tax benefits for charitable organizations, as well as companies and individuals donating funds for charitable purposes;
Tax benefits for small businesses;
Tariff and qualification reference books for workers and employees.
In the private sector, the state indirectly regulates income and wages, since its regulations are advisory in nature.
An important condition for an effective income and wage policy is the determination of the optimal boundaries of state and market regulation. In a market economy, citizens freely choose sources of income - from labor and entrepreneurial activities, from ownership of factors of production. The income of the population forms effective demand and at the same time depends on it. The market mechanism of self-regulation sets the price of production factors - labor, land, capital, entrepreneurial abilities. State regulation of income and wages creates conditions for establishing the relationship of income with factors of production, adjusts the market mechanism and does not undermine the interest of citizens in increasing personal income.
Income and wage policies have a direct impact on motivations, value orientations, and attitudes toward work. It plays an important role in the development of feedback loops between the state, society and individuals. In Russia, this is of particular importance, since in the context of a continuing decline in living standards, the population’s trust in the state has largely been lost. Restoring this trust - an indispensable condition for overcoming the crisis - will depend on the growth of incomes of the population, the state's adherence to the principle of social justice, and the protection of interests and human rights.
The Lorenz curve is a graphical representation of a distribution function. It was proposed by the American economist Max Otto Lorenz in 1905 as an indicator of income inequality. In this representation, it is an image of the distribution function, which accumulates the shares of the population and income. In a rectangular coordinate system, the Lorentz curve is convex downward and passes under the diagonal of the unit square located in the first coordinate quadrant.
Each point on the Lorenz curve corresponds to a statement like “The bottom 20 percent of the population receives just 7 percent of income.” In the case of equal distribution, each population group has an income proportional to its size. This case is described by a line of perfect equality, which is a straight line connecting the origin and the point (1;1). In the case of complete inequality (when only one member of society has income), the curve (line of perfect inequality) first “sticks” to the x-axis, and then from the point (1;0) “soars” to the point (1;1). The Lorenz curve lies between the equality and inequality curves.
Lorenz curves are used to distribute not only income, but also household property, market shares for firms in an industry, and natural resources by state. You can meet the Lorenz curve outside of economics.
Fiscal policy represents measures taken by the government to stabilize the economy by changing the amount of revenues and/or expenditures of the state budget. Therefore, fiscal policy is also called fiscal policy. Fiscal policy is part of the financial policy of the state and is carried out by the government.
Fiscal policy– a policy of manipulating the budget, spending and taxes in order to change real output and employment, control inflation and accelerate economic growth.
Goals fiscal policy, like any stabilization (countercyclical) policy aimed at smoothing out cyclical fluctuations in the economy, is to ensure:
1) stable economic growth;
2) full employment of resources (primarily solving the problem of cyclical unemployment);
3) stable price level (solving the problem of inflation).
Fiscal policy is the government's policy of regulating, first of all, aggregate demand. Regulation of the economy in this case occurs by influencing the amount of total expenditures. However, some fiscal policy instruments can be used to influence aggregate supply through influencing the level of business activity.
Tools Fiscal policy consists of expenditures and revenues of the state budget, namely:
1) government procurement;
2) taxes;
3) transfers.
The impact of fiscal policy instruments on aggregate demand varies. From the aggregate demand formula (AD = C + I + G + Xn) it follows that public procurement are a component of aggregate demand, so their change has an impact direct impact on aggregate demand, and taxes and transfers provide indirect impact on aggregate demand, changing the amount of consumer spending (C) and investment spending (I).
At the same time, an increase in government purchases increases aggregate demand, and a reduction in them leads to a decrease in aggregate demand.
An increase in transfers also increases aggregate demand. On the one hand, since with an increase in social transfer payments, the personal income of households increases, and, consequently, other things being equal, disposable income increases, which increases consumer spending. On the other hand, an increase in transfer payments to firms (subsidies) increases the possibilities of internal financing of firms and the possibility of expanding production, which leads to an increase in investment expenses. A reduction in transfers reduces aggregate demand.
Tax increases work in the opposite direction. An increase in taxes leads to a decrease in both consumer spending (as disposable income is reduced) and investment spending (as retained earnings, which is the source of net investment, are reduced) and, therefore, to a reduction in aggregate demand. Accordingly, tax cuts increase aggregate demand. Tax cuts lead to a shift of the AD curve to the right, which causes an increase in real GNP.
Therefore, fiscal policy instruments can be used to stabilize the economy at different phases of the economic cycle.
Moreover, from the simple Keynesian model (the “Keynesian cross” model) it follows that all instruments of fiscal policy (government purchases, taxes and transfers) have a multiplier effect on the economy, therefore, according to Keynes and his followers, regulation of the economy should be carried out by the government with using the tools of fiscal policy, and above all by changing the amount of government purchases, since they have the greatest multiplier effect.
According to the classical concept, fiscal policy instruments only lead to the redistribution of funds from the private sector to the public sector and do not affect the values of income tax and employment in the economy. The increase in aggregate demand caused by the increase in autonomous demand in the goods market is largely offset by interaction with the money market. This mechanism is called the displacement effect. An increase in government purchases will lead to an increase in the interest rate, which will cause a decrease in investments planned by entrepreneurs in an amount equal to the initial increase in government purchases. There will be a price increase.