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Fiscal policy is also known as budgetary policy, which is a powerful instrument in the hands of the government to intervene in the economy. Fiscal policy relates to a variety of measures which are broadly classified, as: (a) taxation, (b) public expenditure and (c) public borrowing.

Fiscal policy is considered an essential method for achieving, the objectives of development both in developed and underdeveloped countries of the world.

Role of Fiscal Policy:

The role of fiscal policy in less developed countries differs from that in developed countries.

In the developed countries, the role of fiscal polity is to promote fall employment without Inflation through its spending and taxing powers. Whereas the position of the developing countries is very much different. The LDC’s (Less Developed Countries) or backward countries are caught in a vicious circle of poverty.

The vicious circle of low income, low consumption, low savings, low rate of capital formation and therefore low income has to be broken by a suitable fiscal policy. Fiscal policy in developing countries is thus used to achieve objectives which are different from the advanced countries.

Objectives of Fiscal Policy:

Following are the main objectives of a fiscal policy:

(i) To mobilize resources for financing development.

(ii) To promote economic growth in the private sector.

(iii) To control inflationary pressure in the economy.

(iv) To promote economic stability with employment opportunities.

(v) To ensure equitable distribution of income and wealth.