Question
I need Summary of this Paper i dont need long summary i need What methodology they used , what is the purpose of this paper and some conclusions and contributes of this paper. I need this for my Finishing Project so i need this ASAP please ( IN 1-2-3 HOURS PLEASE !!!)
Budgetary Policy and Economic Growth Errol DSouza The share of capital expenditures in government expenditures has been slip
MUIV2a a budgeted 38.96 per cent in 1996-97. The increase in transfer payments and consump- tion expenditures has been at the
new infrastructure facilities, or to generate plugged. Prima facie it seems that equity has be growth promoting provided such
w andnever to preserve the interests of managers or their own positions as board members. It also does not appreciate that th
shareholders of the firm and this has a negative impact on the efficiency of the economy. Most importantly it violates the co
O w p w aresluggish, and interest rates in the organised sector of the money market are generally sticky [Pandit 1991], the r
This impljes that as government expenditure changes, inflation and non-inflation tax rates move together. To study the effect
balance of trade. However, a reduction in tax rates must be accompanied by a rise in interest rates in order for the same lev
FIOURE 2 (6) The fraction of govemment expenditure devoted to investment is such that its impact on private investment (al) i
es represenung mgner eveIs U vupu UlnICICRaIOT DIrJanu uen seung uD=v up again to .39 per cent in 1yy4-y. in Figure the area
adversely and the slow output growth was unable to counter the effects of these two deter minants of investment. Despite an i
balance, the savings rate improves, ana there is a recovery in the tax revenue/GDP and government capital expenditure/governm
6 We are ignoring the Cavallo effect here - i e increased interest rates form a mark-up price element which leads to a cost-p
Budgetary Policy and Economic Growth Errol D'Souza The share of capital expenditures in government expenditures has been slipping and the tax reforms have not yet improved the income elasticity of the tax system. In order to keep the economy on a high growth path direct measures to boost savings and public investment are required, both of which measures require a new thrust to economic policy management that is missing in the budget. of the promotion of fiscal stability. Current transfer payments (interest, subsidies, etc) averaged 30.11 per cent of total central government expenditures in the pre-reform period. Inthe reforms period this component of expenditures has mushroomed with the figures being 35.88 per cent in 1990-91 and 40.55 per cent budgeted for 1996-97 (Table 1). Similarly, consumption expendi- tures as a proportion of central government expenditures which had averaged 36.94 per cent in the pre-reforms period have in creased from 33.94 per cent in 1990-91 to a budgeted 38.96 per cent in 1996-97. The increase in transfer payments and consump- tion expenditures has been at the cost of capital expenditures which is the growth promoting component of government expenditure Capital expenditures' as a proportion of central government expenditures had averaged 32.62 per cent in the pre-reforms proposed which is expected toraise Rs 1,600- period and declined sharply from 30.18 per crore in the current year and this money will cent in 1990-91 to a budgeted 20.49 per cent in 1996-97. To get growth going, transfer payments andconsumption expenditures will have to be reined in so as to make the funds available for capital expenditures. As interest payments are a major part of transfer payments they amount to 72.28 per cent of transfer payments in 1996-97 the bite will have to be centred on subsidies and grants to states in order to curtail this comnonent. This conflicts with the obiective all expenditures are to be reduced, however some interest thatis represented in the agenda of a political party will not be promoted and the resistance this generates will make it hard to attain consensus. With a coalition of political parties sharing power the veto is a more credible blocking strategy when some interest is threatened and that makes THE motto of the United Front government, according to the finance minister is growth with social justice. Moreover, growth is seen as a precondition for social justice because "unless the country's GDP grows at over 7 per cent per year in the next 10 years, we will not be able to abolish poverty and unemployment" (budget speech). The problem in keeping growth going is two- fold. First, "we cannot sustain a 7 per cent growth unless we can revitalise infrastructure sectors" (budget speech). Second, "the biggest challenge that we face is the fiscal challenge" (budget speech). To tackle the fiscal challenge the strategy proposed has two planks to raise more revenues together with establishing a credible public expenditure management policy. It is with this emphasis on growth that this article is concemed. Given the preoccupation with growth we ask how tax reforms the only area of reforms that has been compre- hensively implemented in successive budgets and which has generated a large consensus - given the current economic conjuncture can contribute to promoting this objective and what sort of supporting policy measures can be of help in this regard. We review the expenditure and revenue patterns during the reforms period and some of the specific budgetary proposals this year before analvsine the imnact of tax reforms on expenditure compression much more difficult. It seems then that expenditure management in a way that will promote the capital expenditures of government will not be forthcoming. The finance minister realises this and so has resorted to the strategy of making funds available for capital expenditures, especially infrastructure, through raising more resources and attempting to gamer extra-budgetary support rather than through expenditure management. To further this a 2 per cent special customs duty on imports has been be used for infrastructure development. At. the margin this measure will raise the price of imported inputs and reduce the competitiveness of Indian industry. To the extent, however, that the resources so raised increase infrastructure investment and this crowds-in private investment and improves- the cost efficiency of production, the- escalation in input costs will be neutralised. Second, an infrastructure development: finance companv is to be established withs
MUIV2a a budgeted 38.96 per cent in 1996-97. The increase in transfer payments and consump- tion expenditures has been at the cost of capital expenditures which is the growth promoting component of government infrastructure sectors" (budget speech). Second, "the biggest challenge that we face is the fiscal challenge" (budget speech). To tackle the fiscal challenge the strategy proposed has two planks to raise more revenues together with establishing a credible expenditure public expenditure management policy. It is with this emphasis on growth that this article is concemed. Given the preoccupation with growth we ask how tax reforms the only period and declined sharply from 30.18 per area of reforms that has been compre- hensivelyimplemented in successive budgets in 1996-97. To get growth going, transfer and which has generated a large consensus - given the current economic conjuncture can contri
0 0
Add a comment Improve this question Transcribed image text
Answer #1

The great depression of the 1930s has had a profound influence on both economic and political thinking. The consequences of this event turned out to be of such a dimension that broad consensus emerged on governments doing their best to prevent such disasters from happening again. But even beyond this extreme case, there is general agreement that a stable and predictable economic environment contributes substantially to social and economic welfare. In the short-run, households prefer to have economic stability with continuous employment and stable incomes, allowing them to maintain stable consumption over time. In the long-run, unnecessary economic fluctuations can reduce growth, for example by increasing the riskiness of investments. A highly volatile economic environment might also have a negative impact on the choice of education profiles and career paths. In short, by maintaining a stable macroeconomic environment, economic policy can thus contribute to economic growth and welfare.

In the late 1960’s the Keynesian view became increasingly challenged by Monetarism. The debate between Keynesians and monetarists often focused on the effectiveness of policy instruments, with monetarists arguing for the ineffectiveness of fiscal tools and Keynesians believing in the superiority of fiscal stabilisation policy.[3] In the context of this discussion, Milton Friedman addressed the question of whether and how much to stabilise at his 1967 Presidential Address to the American Economic Association. Concerned about the possibility that monetary policy actions may themselves be a source of economic instability, Friedman argued that macroeconomic stability is best achieved using an “unconditional” policy rule: his famous “k-percent” money growth rule.

While nowadays nobody seems to support the use of such rigid rules, Friedman’s basic underlying idea remains relevant. His view on stabilisation policy was grounded in the firm belief that the economic system is eventually self-stabilising whereas available knowledge about the economic system is too limited for effectively addressing short-run fluctuations.

In recent times the overall stabilisation problem has become much less severe. In particular, economic volatility – measured by the standard deviation of quarterly output growth – seems to have fallen considerably in many industrialised countries when comparing the recent two decades to the preceding post World War II experience. Some economists, including David and Christina Romer, suggested this to be due to a fundamental change in the understanding among policymakers about what aggregate demand policy can accomplish. This possibly validates the view that, in the past, severe recessions have been partly caused by over-ambitious macroeconomic policies.[5] Whether this optimistic view about the source of business cycles is the final word on the issue remains to be seen. Clearly other views have been expressed, including the one that the recent experience is simply due to a fortunate sequence of extraordinarily small economic shocks. Whatever viewpoint will ultimately turn out to be correct, they both request discussing the role of monetary and fiscal stabilisation policies, be it to educate our minds and to avoid the mistakes of the past, or be it for effectively counteracting larger disturbances should these reappear.

Fiscal policy is a government's decisions regarding spending and taxing. If a government wants to stimulate growth in the economy, it will increase spending for goods and services. This will increase demand for goods and services. Since demand goes up, production must go up. If production goes up, companies may need to hire more people. People that were once unemployed may now have jobs and money to spend on goods and services.

This will further increase the demand and require more production and, hopefully, the cycle of growth will continue. Barry may even get more business as people have more money to spend on products at his store. Consequently, government spending tends to speed up economic growth.

If the government thinks the economy is overheating - or growing too fast - the government may decrease spending. A decrease in government spending will decrease overall demand in the economy.

Businesses will slow production, which means profits will decline, resulting in less hiring and business investments. A cut in government spending may hurt Barry's business, because there will be less money in people's pockets to spend at his store, possibly from being laid off. If Barry provides goods or services to the government, he may take a double-hit.

The other side of fiscal policy is taxes. Decreasing taxes tends to stimulate economic growth. If taxes go down, Barry will have more money in his pocket. He'll either spend it or save it. If he spends it, he increases demand and businesses have to produce more. This means they may have to hire more people. These people will then have more money to save or spend - maybe at Barry's store. On the other hand, if Barry saves the money, he'll put it in his bank. The bank will loan the money he deposited, and borrowers will spend it.

Some economists are concerned that government spending and reduction in taxes will create a crowding out effect. If the government doesn't have enough revenue to support spending, it will have to borrow money. According to some economists, government borrowing tends to increase interest rates. And, increased interest rates discourage individuals and businesses, like Barry, from borrowing money for spending and investment. According to these economists, government spending may crowd out private investment.

If the government wants to slow down an overheating economy, it may decide to raise taxes. This means people have less money to spend. Fewer people will be hired because there is less demand. Unemployed people don't have extra money to spend at Barry's store. Barry may not make as much money, which means he'll have less money to invest in his business and less money to spend for his personal consumption. The economy will slow down.

Add a comment
Know the answer?
Add Answer to:
I need Summary of this Paper i dont need long summary i need What methodology they used , what is the purpose of this p...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • I need Summary of this Paper i dont need long summary i need What methodology they used , what is the purpose of this...

    I need Summary of this Paper i dont need long summary i need What methodology they used , what is the purpose of this paper and some conclusions and contributes of this paper. I need this for my Finishing Project so i need this ASAP please ( IN 1-2-3 HOURS PLEASE !!!) SPECIAL ARTICLES tole of Monetary Policy C Rangarajan What should be the objectives of monetary policy? Does the objective of price stability conflict with the goal of achieving...

  • 5. Use the Simple Classical Macroeconomic Model to answer the following questions c. Suppose the tax...

    5. Use the Simple Classical Macroeconomic Model to answer the following questions c. Suppose the tax cut has not been enough to stimulate sufficient job growth. The government passes infrastructure improvement legislation to increase government spending from $3,000 to $4,000. What is the affect on GDP from the combined changes (Taxes and Spending) in government policies? . Suppose the government decides to spend $3,000 and collect $3,500 in taxes, and investment is equal to $1,500. What would GDP be if...

  • makers in the U.S. government have long tried to write laws that encourage growth in per...

    makers in the U.S. government have long tried to write laws that encourage growth in per capita real GDP. These laws a. They encourage firms to invest more in research and development in order to boost technology b. They encourage individuals to save more in order to boost the physical capital stock. c. They encourage individuals to invest more in education in order to boost the stock of human capital laws that encourage growth in per capita real GDP. These...

  • I need some confirmation on how I scored on an AP Macroeconomics Assignment. If I get...

    I need some confirmation on how I scored on an AP Macroeconomics Assignment. If I get something wrong, could you please tell me what the correct answer is, as well as why? Thanks! 1) Sources of economic growth would include an increase in: consumer spending. GDP. worker education. government spending. financial investment. (I put worker education) 2) Suppose real GDP per capita in Canada is $25,000 and its annual growth rate is 7%. Real GDP per capita for Canada will...

  • 1) Which of the following is an example of a measure of labor productivity

    1) Which of the following is an example of a measure of labor productivity?a. Autos get 30 gallons to the mile.b. The growth rate of per capita real GDP is 3.5 percent per year.c. Farm workers produce 30 bushels of wheat per worker per day.d. Wages increase by 3.5 percent per year for 5 years.2) Labor productivity increases whena. the unemployment rate decreases.b. the average output produced per worker during a specified time period decreases.c. the average number of hours...

  • Variable Gross Savings % of GNI) Bolivia 16.7 Serbia 16.6 3.1 13.6 97.6 2.8 Inflation, consumer...

    Variable Gross Savings % of GNI) Bolivia 16.7 Serbia 16.6 3.1 13.6 97.6 2.8 Inflation, consumer prices 2.8 (annual %) Deposit Interest Rate (%) Mobile cellular 97.9 subscriptions (per 100 people) Logistics Performance Index - Overall Rule of Law (percentile 9.6 rank) Control of Corruption 28.4 (percentile rank) Military Expenditures (% of 1.5 GDP) Source: World Development Indicators Use the data to answer the following questions. 48.1 43.3 a. Use the information on inflation and interest rates to calculate the...

  • just answers 19 An increase il SI00. Which of the foll the MPC is 0.5 and...

    just answers 19 An increase il SI00. Which of the foll the MPC is 0.5 and the increase in invesu the MPC is 0.5 and the increase in investment wd the MPC is 0.75 and the increase in investment was 25 the MPC is 0.75 and the increase in investment was 20 Assuming the new equilibrium income level is $400 and the level of full employment income is S600, there would be a: deflationary gap of $50 deflationary gap of...

  • Preferred e-mail address! - Answer each of the following, equal weighed questions. 1. List all of the following whic...

    Preferred e-mail address! - Answer each of the following, equal weighed questions. 1. List all of the following which are typically concerns of macro-economics. a. Growth of Gross Domestic Product b. Imperfect competition, i.e., monopolies and oligopolies. c. Deflation. d. The distribution of income. e. The tax treatment of capital gains. f. Nominal interest rates. 2. Indicate whether each of the following data series are treated as endogenous or exogenous in the economic models presented in Chapters 1 through 12...

  • 5.We can illustrate the economic growth model using the per-worker production function, which is the relationship...

    5.We can illustrate the economic growth model using the per-worker production function, which is the relationship between ______, holding the level of technology constant. A.real GDP per capita and capital per capita B.real GDP per hour worked and capital per hour worked C.nominal GDP per capita and capital per capita D.nominal GDP per hour worked and capital per hour worked 6.Why has productivity growth in the U.S. been more rapid than in the other industrialized countries? A.Because of the greater...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT