fiscal policy

One of the possible expected outcomes of fiscal policy is that aggregate demand increases, leading to an economic recovery

Fiscal (fiscal) policy(English) fiscal policy) - government policy, one of the main methods of state intervention in the economy in order to reduce fluctuations in business cycles and ensure a stable economic system in the short term. The main instruments of fiscal policy are the revenues and expenditures of the state budget, that is: taxes, transfers and government purchases of goods and services. Fiscal policy in the country is carried out by the government of the state.

Main objectives of fiscal policy

Fiscal policy, in addition to monetary policy, is an extremely important component of the work of the state as a distributor in the economy. As an instrument of government, fiscal policy has several purposes. The first goal is to stabilize the level of gross domestic product and, accordingly, aggregate demand. Then, the state needs to maintain macroeconomic equilibrium, which can only be successful if all resources in the economy are effectively used. As a result, along with the smoothing of the parameters of the state budget, the general price level also stabilizes. Both aggregate demand and aggregate supply fall under the influence of fiscal policy.

Impact of fiscal policy

For aggregate demand

The main parameters of fiscal policy are public procurement (ref. G), taxes (ref. Tx) and transfers (ref. Tr). The difference between taxes and transfers is called net taxes(designation T). All these variables are included in aggregate demand (ref. AD) :

Consumer spending ( C) are divided into two groups: autonomous from household income and constituting a certain share of disposable income ( Yd). The latter depend on limit for consumption(designation mpc), that is, how much the cost increases for each additional unit of income. In this way,

At the same time, disposable income is the difference between total output and net taxes:

It follows that taxes, transfers, and government purchases are aggregate demand variables:

Therefore, it is obvious that when any parameter of fiscal policy changes, the entire aggregate demand function changes. The impact of these tools can also be expressed using economic multipliers.

For the total offer

The offer of all goods and services provide firms, important macroeconomic agents. Aggregate supply is affected by taxes and transfers; government spending has little effect on supply. Firms accept taxes as a regular cost per unit of output, which forces them to reduce the supply of their product. Transfers, on the other hand, are welcomed by entrepreneurs because they can increase the supply of services they provide. When a large number of firms pursue the same policy of supplying goods, the aggregate supply of the entire economy under consideration changes. Thus, the state can influence the state of the economy through the correct introduction of taxes and transfers.

Fiscal policy and the state of the country's economy

Business cycles in macroeconomics

Abstract image of business cycles in the economy

In any economic system, cyclical fluctuations can be distinguished: ups and downs in the economy caused by shocks to aggregate demand and aggregate supply and called business cycles, economic or business cycles. The phases of business cycles are rise, "peak", recession (or recession) and "bottom", that is, crisis. The deepest recession is called depression. Often such fluctuations in business activity are unpredictable and irregular. There are also business cycles of different periods, frequency and size. The reasons for such cycles can be very different: from wars, revolutions, the technological process and investor behavior to, for example, the number of magnetic storms per year and the rationality of macroeconomic agents. In general, such unstable behavior of the economy is explained by the constant imbalance between aggregate supply and demand, total spending and production volumes. The business cycle theory gained a lot of popularity thanks to the American economist William Nordhaus. Great contributions to the development of business cycle theory have been made by people such as Robert Lucas, the Norwegian economist Finn Kydland, and the American Edward Prescott.

As a rule, the policy of the state depends on the state of the economy of a given country, that is, on what phase of the cycle the country is in: recovery or recession. If the country is in recession, then the authorities spend stimulating economic policy to bring the country out of the bottom. If a country is experiencing an upturn, then the government spends contractionary economic policy in order to prevent high rates of inflation in the country.

Stimulating policy

If the country is experiencing a depression or is in the stage of an economic crisis, then the state may decide to conduct stimulating fiscal policy. In this case, the government needs to stimulate either aggregate demand, or supply, or both. To do this, other things being equal, the government increases its purchases of goods and services, reduces taxes, and increases transfers, if possible. Any of these changes will lead to an increase in aggregate output, which automatically increases aggregate demand and the parameters of the system of national accounts. Stimulating fiscal policy leads to an increase in output in most cases.

Restraining policy

The authorities are conducting contractionary fiscal policy in the event of a short-term "overheating of the economy". In this case, the government takes measures that are directly opposite to those carried out under stimulating economic policy. The government cuts its spending and transfers and increases taxes, reducing both aggregate demand and possibly aggregate supply. Such a policy is regularly carried out by the governments of a number of countries in order to slow down the rate of inflation or avoid its high rates in the event of an economic boom.

Automatic and discretionary

Economists also divide fiscal policy into the next two types: discretionary and automatic. Discretionary policy is officially announced by the state. At the same time, the state changes the values ​​of fiscal policy parameters: government purchases increase or decrease, the tax rate, the size of transfer payments, and similar variables change. By automatic policy is understood the work of "built-in stabilizers". These stabilizers are such as the percentage of income tax, indirect taxes, various transfer benefits. The amount of payments is automatically changed in case of any situation in the economy. For example, a housewife who lost her fortune during the war will pay the same percentage, but from a lower income, therefore, the taxes for her automatically decreased.

Fiscal policy shortcomings

Crowding out effect

This effect, also known as crowding out effect manifests itself with an increase in government purchases of goods and services in order to stimulate the economy. Recognized as a major shortcoming of fiscal policy by many economists, especially exponents of monetarism. When government increases its spending, he needs money in the financial market. Thus, in the loan market growing demand for money. This causes banks to raise prices for their loans, i.e. increase their interest rate for reasons such as a profit maximization motive or simply a lack of money to lend out. An increase in the interest rate is not liked by investors and entrepreneurs of firms, especially start-ups, when the company does not have its own "starting" money capital. As a result, due to high interest rates, investors have to take out less and less loans, which leads to decrease in investments in the country's economy. Thus, stimulating fiscal policy is not always effective, especially if the country does not develop business of any kind properly. The effect of "Crowding-in" is also possible, that is, an increase in investment due to a reduction in government spending.

Other disadvantages

Notes

1. David N. Weil Fiscal Policy // The Concise Encyclopedia of Economics: Article.
2. Yandex. Dictionaries. "Defining Fiscal Policy"
3. Matveeva T. Yu. 12.1 Goals and instruments of fiscal policy // Introduction to macroeconomics. - "Publishing House of the State University-Higher School of Economics", 2007. - P. 446 - 447. - 511 p. - 3000 copies. - ISBN 978-5-7598-0611-0
4. Grady, P. Fiscal Policy // The Canadian Encyclopedia: Article.
5. Matveeva T. Yu. Course of lectures on macroeconomics for ICEF. - "Publishing House of the State University-Higher School of Economics", 2004. - P. 247 - 251. - 444 p.
6. Matveeva T. Yu. 4.4 The economic cycle, its phases, causes and indicators // Introduction to macroeconomics. - "Publishing House of the State University-Higher School of Economics", 2007. - P. 216 - 219. - 511 p. - 3000 copies. - ISBN 978-5-7598-0611-0
7. Oleg Zamulin, "Real business cycles: their role in the history of macroeconomic thought."
8. "Yandex. Dictionaries, Definition of business cycles
9. Harper College Material"Fiscal Policy" (English): Lecture.
10. Investopedia"Definition of Crowding-out Effect" (English): Article.
11. Edge, K."Fiscal Policy and Budget Outcomes" (English): Article.
12. Matveeva T. Yu. 12.3 Types of fiscal policy // Introduction to macroeconomics. - "Publishing House of the State University-Higher School of Economics", 2007. - P. 458-459. - 511 p. - 3000 copies. - ISBN 978-5-7598-0611-0

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See what "Fiscal Policy" is in other dictionaries:

fiscal policy- regulation by the government of business activity with the help of measures in the field of budget management, taxes and other financial opportunities. There are two types of fiscal policy: discretionary and automatic. Fiscal policy… … Financial vocabulary

Introduction

1. Fiscal policy as a system of state regulation of the economy

1.1 The essence of the fiscal policy of the state

1.2 Principles and mechanisms of the impact of fiscal policy on the functioning of the economy

1.3 Fiscal policy instruments

2. Features of fiscal policy in the Russian Federation

2.1 The need to reform fiscal policy

2.2 Ways and methods to improve fiscal policy

Conclusion

Bibliographic list

Introduction

I think the topic of this coursework is very relevant today. Fiscal policy is one of the main instruments of state regulation of the economy and, in the context of the ongoing economic crisis in Russia, plays a significant role in the restoration of the national economy.

The difficult situation of the economy predetermines fiscal policy aimed, on the one hand, at stopping the decline in production and at stimulating production (for example, in the form of separate tax incentives for producers), at mobilizing financial resources for their effective investment in certain sectors of the economy, and on the other hand, at containment of all social programs, reduction of defense spending, etc. Accordingly, when the economy transitions to another state, the directions of fiscal policy change.

Recently, there has been a tendency to strengthen the role of the government in regulating the national economy through the financial system, namely, government spending on social security programs, on maintaining an average income level, on health care, education, etc.

Meanwhile, since the beginning of economic reforms in Russia, the government has taken the lead in introducing extremely high taxation on firms' income, which has had a negative impact on the state of the national economy and the prospects for its recovery. It is no coincidence that the response is the active development of the shadow economy. As a result, the Government of the Russian Federation is not able to collect even half of the envisaged revenues into the revenue side of the budget.

In this regard, the fiscal policy of the Government of the Russian Federation needs to be further reformed both in the field of taxation and in the field of public spending.

So, the purpose of this work is a comprehensive consideration of the fiscal policy of the state as a method of state regulation of the economy. Firstly, I will reveal the very concept of fiscal policy, highlight its main components, outline the principles, mechanisms and tools for influencing the economic system of society. Secondly, I will analyze the modern fiscal policy in the Russian Federation: highlight the objective reasons for the need to reform the existing fiscal policy, the transformations carried out by the government of the Russian Federation at the present time, as well as possible ways for further improvements in the field of fiscal policy.

In preparation for writing this work, I studied a wide range of literary sources, a complete list of which can be found in the final part of the course project. However, I would like to note the literature that contains, in my opinion, the most detailed and qualified information on the features of fiscal policy in Russia. These are: the article "Implementation of fiscal policy" / Problems of Forecasting, No. 2, 2003, pp. 45-57, which outlines the main directions of modern fiscal policy in the Russian Federation, and also highlights the processes of its reform; the article "The main guidelines for fiscal policy" / Finance, No. 8, 2002, pp. 50-56, which provides possible ways to optimize the current fiscal policy, points out the goals that the government of the Russian Federation should pursue in the course of the ongoing reforms, as well as their possible consequences; article "Is the current tax policy effective" / Finance, No. 10, 2002, pp. 24-32, which examines the features of modern tax policy in Russia as one of the main components of fiscal policy: the processes of reforming the taxation system, changes in the economy occurring under the influence of these processes, as well as methods for further improvement, increasing the efficiency of the tax system in the Russian Federation.

1. Phirock politics as a system Gstate regulation of the economy

1.1 The essence of the fiscal policy of the state

Through fiscal policy, the state regulates the system of measures in the field of government procurement of goods and services, as well as taxation. The word "fiscal" of Latin origin and in translation means official. In Russia, in the era of Peter I, fiscal officials were called officials who supervised the collection of taxes and financial affairs. In modern economic literature, fiscal policy is associated with government regulation of government spending and taxation. Government spending on the purchase of goods and services significantly affect the size of the gross and net domestic product. In our country, such purchases were usually called state orders, which were financed from the state budget. In fact, fiscal policy is the main lever by which the state can influence the economy. Therefore, it is necessary to consider how the state, through this policy, affects the achievement of an equilibrium volume of national production, economic stability and full employment.

To understand the general principles of state regulation, it is necessary to clearly distinguish two components of fiscal policy.

This is government spending on the purchase of goods and services, with which you can increase or decrease total spending, and thereby affect the volume of national production. Government spending includes all budget allocations directed to the construction of roads, schools, hospitals, cultural institutions, the implementation of environmental and energy programs and other public needs and needs.

This includes defense spending, foreign trade purchases, the purchase of agricultural products necessary for the population, etc. Such expenditures and purchases can be called state-public, because the consumer of goods and services is society as a whole, represented by the state.

Government spending directed to the regulation of the sustainable functioning of the market economy. Such spending contributes to an increase or decrease in domestic output (NDP) during periods of its recession or recovery. Government spending not only directly, but also through the multiplier effect affect the volume of domestic production, causing it to increase or decrease.

The state influences the volume of domestic production through its tax policy. Obviously, the higher the taxes, the less income the population will have, which means the less they will buy and save. Therefore, a reasonable tax policy involves a comprehensive consideration of those factors that can stimulate or hinder economic development and the welfare of society.

At first glance, it seems that high taxes, contributing to an increase in government revenue, will work for society and the country's budget. But upon closer examination, the opposite is revealed: neither the enterprise nor the worker finds it profitable to work with excessively high taxes, as we all could see from the example of our economic reform. However, low tax rates will significantly undermine the state budget and its most important items, such as the cost of maintaining budgetary organizations and social and cultural events. That is why, when pursuing a cautious and reasonable tax policy, it is necessary, as they say, to measure seven times and cut off once.

Government spending on the purchase of goods and services usually makes up a significant portion of the budget. In our country, they acted in the form of state orders to enterprises. Such an order is also practiced in countries with a developed market structure. So, in the USA and England, a fifth of GDP is acquired by the state, and, as a rule, firms and corporations always strive to receive an order from the state, since this provides them with a guaranteed sales market, credit and tax benefits, and eliminates the risk of non-payment. Ruzavin G.I. Fundamentals of the Market Economy: Textbook for High Schools - M.: Banks and Exchanges, UNITI, 2001. - p. 273

The government increases its purchases during periods of recession and crisis and reduces during periods of recovery and inflation in order to maintain the stability of domestic production. At the same time, these actions are aimed at regulating the market, maintaining a balance between supply and demand. This goal is one of the most important macro-economic functions of the state.

The most important role is played by public spending in financing the social and cultural programs of the state, ensuring its defense, maintaining the administrative apparatus and law enforcement agencies, as well as investing in the development of the public sector of industry. At the same time, a huge deficit of the state budget has developed in our country, which leads to a financial imbalance in the national economy and therefore requires especially careful planning of expenditures, achieving maximum efficiency. A significant role in replenishing the budget can be played not so much by a reasonable tax policy as by measures to tighten tax discipline. This applies primarily to cooperatives, rental and joint ventures, and especially commercial structures, which often evade taxes by finding all sorts of loopholes in laws and regulations. Moreover, publications appear in the press that teach people to circumvent taxation laws. All this indicates a very low level of organization of our fiscal policy, both in terms of public spending and taxation. In the latter case, on the one hand, very high taxes on profits and value added are observed, which makes it impossible to expand the production of consumer goods, and on the other hand, the state loses a lot from non-payment of those completely legal and justified taxes, which many commercial structures evade, not to mention the direct embezzlement of billions of dollars from banks on false documents and the assistance of corrupt officials.

Apparently, many shortcomings in our tax system are explained by the fact that in our country, in fact, it has only just begun to take shape. Many laws and regulations turned out to be imperfect and had to be clarified and supplemented, especially after the collapse of the Soviet Union; The apparatus of the tax inspectorate turned out to be poorly prepared to deal with violators of the laws. The successful implementation of tax policy is also hampered by old views and psychological attitudes, according to which taxes were considered a typical bourgeois tool of management. It is not superfluous to recall that in the 1960s we issued a law on the gradual abolition of all taxes, which, of course, was never introduced, since it is clear to everyone that no state can exist without taxes.

Taxes are levied on income (property) of individuals and legal entities. As a normative form imposed on income, taxes are characterized by the obligation and urgency of payment. Therefore, any tax evasion and untimely payment of them lead to appropriate legal and administrative-financial sanctions.

Fundamentally new in our legislation is the introduction of income tax, which is more in line with the structure of the market economy than the payments that existed before, especially those that went to the ministries. Although income taxes are still high, however, legislatures are gradually beginning to realize that they must be lowered, and gradually they are actually beginning to be revised. Along with this, various benefits are provided to enterprises, for example, when conducting research and development work and mastering new and high technologies.

For income tax, there is a scale of taxation depending on the form of ownership; various benefits are also provided for different categories of citizens; too high taxes on individual labor activity have been canceled, although there are still unjustified rates and restrictions.

Finally, a completely new thing for us is the creation of a tax inspectorate, which is designed to strictly control the process of taxation in the conditions of the formation of various forms of ownership and carefully monitor the payment of taxes by collective and private enterprises, as well as individual citizens.

1.2 Principles and mechanisms of the impact of fiscal policy on the functioning of the economy

With the help of fiscal policy, the state can directly influence the development of the economy, achieving its sustainable growth, price stability and full employment of the able-bodied population.

Such a policy consists in foreseeing in time the decline in production and the growth of unemployment, as well as the growth of inflationary processes in the economy and influencing them accordingly. With the coming decline in production, the government increases government spending and cuts taxes in order to increase aggregate spending and investment. Thus it promotes the rise of production and employment. On the contrary, when inflation occurs, government spending decreases and taxes increase.

All measures providing for this kind of state regulation of the economy have received the name of discretionary policy. Together with monetary policy, it plays a crucial role in the state's management of macroeconomics, i.e. phenomena related to employment, expenditures and incomes of the population, price stability and sustainable development of production.

However, macroregulation is not limited only to the direct actions of the state in the face of its governing bodies. If there were no other regulators, then we would only have to wait for the government representatives to notice the negative phenomena in the economy and take measures to eliminate them. And the implementation of such measures will require a certain amount of time until they are precisely formulated, approved by the legislature, and then, finally, implemented.

Fortunately, in a market economy there are certain mechanisms of self-organization and self-regulation that come into effect immediately, as soon as negative processes in the economy are revealed. They are called built-in stabilizers. The principle of self-regulation that underlies these stabilizers is similar to the principle on which an autopilot or refrigerator thermostat is built. When the autopilot is on, it maintains the aircraft's heading automatically based on incoming feedback. Any deviation from the set course due to such signals will be corrected by the control device. Economic stabilizers work in a similar way, thanks to which automatic changes in tax revenues are carried out; payment of social benefits, in particular for unemployment; various state programs of assistance to the population, etc.

How does self-regulation, or automatic change, take place in tax revenues? A progressive tax system is built into the economic system, which determines the tax depending on income. With an increase in income, tax rates progressively increase, which are approved by the government in advance. With an increase or decrease in income, taxes automatically increase or decrease without any intervention by the government and its governing and control bodies. Such a built-in stabilization system of levying taxes is quite sensitive to changes in the economic situation: during periods of recession and depression, when the incomes of the population and enterprises fall, tax revenues automatically decrease as well. Conversely, during inflation and boom periods, nominal income rises and therefore taxes automatically rise.

In the economic literature on this issue, there are different points of view. A hundred years ago, many economists spoke out for the stability of tax collections, because, in their opinion, it contributes to the stability of the economic situation of society. At present, there are many economists who hold the opposite point of view and even declare that the objective principles underlying the built-in stabilizers _ should be preferred to the incompetent intervention of state authorities, which are often guided by subjective opinions, inclinations and preferences. At the same time, there is also an opinion that one cannot fully rely on automatic stabilizers, since in certain situations they may not respond adequately to the latter, and therefore need to be regulated by the state.

Payments of social assistance benefits to the unemployed, the poor, families with many children, veterans and other categories of citizens, as well as the state program to support farmers, the agro-industrial complex are also carried out on the basis of built-in stabilizers, because most of these payments are realized through taxes. And taxes, as you know, grow progressively along with the incomes of the population and enterprises. The higher these incomes, the more tax deductions to the fund for helping the unemployed, pensioners, the poor and other categories of those in need of state assistance are made by enterprises and their employees.

Despite the significant role of built-in stabilizers, they cannot completely overcome any fluctuations in the economy. Just as a real pilot comes to the aid of an autopilot in difficult situations, so in case of significant fluctuations in the economic system, more powerful state regulators are included in the form of discretionary fiscal and monetary policy.

Let us briefly consider the main elements of discretionary policy. The main element is the change in the programs of social work. Such works were deployed during the Great Depression of the 30s in order to combat unemployment by increasing jobs. Since, however, such projects were drawn up hastily and focused on keeping people busy with any kind of work, for example, building roads without the necessary number of machines and mechanisms, or even raking dry leaves in parks, the economic efficiency of these programs was very insignificant. In addition, it should be borne in mind that at present in developed countries, production declines are much shorter, so they can be combated by lowering tax rates and using monetary policy.

But this, of course, in no way means diminishing the role of public works in solving problems that affect the interests of all members of society, whether it concerns the construction of roads, the reconstruction of cities, the improvement of the ecological environment, etc. However, such work cannot be directly linked to the achievement of rapid stabilization of the economy, the elimination of its short-term recessions. The developed countries of the West drew their own conclusions from the ineffective public works policy that was launched in the 1930s.

Another important element is the change in tax rates. When a short decline in production is predicted, decisions to reduce tax rates appear in addition to built-in stabilizers. Although the progressive taxation system makes it possible to automatically change tax revenues to the budget, which will decrease with a decrease in production and income, this may not be enough to influence the negative situation that has arisen. It is during this period that the need arises to reduce tax rates and increase government spending in order to promote the rise of production and overcome its decline.

Discretionary fiscal policy also provides for additional spending on social needs. Although unemployment benefits, pensions, benefits for the poor and other categories of people in need are regulated using built-in stabilizers (increase or decrease as income-based taxes come in), nevertheless, the government can implement special programs to help these categories of citizens in difficult times of economic development. .

Thus, we come to the conclusion that an effective fiscal policy should be based, on the one hand, on self-regulation mechanisms embedded in the economic system, and on the other hand, on careful, cautious discretionary regulation of the economic system by the state and its governing bodies. Consequently, the self-organizing regulators of the economy must function in concert with the conscious regulation organized by the state.

Generally speaking, the entire experience of the development of a market economy, especially of our century, indicates that in the development of the economy and other systems of social life, self-organization must go hand in hand with organization, i.e. conscious regulation of economic processes by the state.

However, such regulation is not easy to achieve. Let's start with the fact that it is necessary to predict a recession or inflation in a timely manner, when they have not yet begun. It is hardly advisable to rely on statistical data in such forecasts, since statistics sum up the past, and therefore it is difficult to determine future development trends from it. A more reliable tool for predicting the future level of GDP is the monthly analysis of leading indicators, which is often referred to by politicians in developed countries. This index contains 11 variables that characterize the current state of the economy, including the average length of the working week, new orders for consumer goods, stock market prices, changes in orders for durable goods, changes in the prices of certain types of raw materials, etc. . It is clear that if, for example, there is a reduction in the working week in the manufacturing industry, orders for raw materials decrease, orders for consumer goods decrease, then with a certain probability one can expect a decline in production in the future.

However, it is rather difficult to determine the exact time when the recession will occur. But even under these conditions, it will take a long time before the government takes appropriate measures. In addition, in the interests of the upcoming election campaign, it can implement such populist measures that will not improve, but only worsen the economic situation. All such non-economic factors will run counter to the need to achieve production stability.

An effective fiscal policy should take into account the real state of the economy, namely, it should be stimulating, i.e. increase government spending and reduce taxes during the emerging decline in production. During the period of inflation that has begun, it should be restraining, i.e. raise taxes and reduce government spending.

1.3 Fiscal policy instruments

Public spending on the purchase of goods and services is a new component in the total cost of PVP production. In order to understand the impact of such expenditures on the change in the production of the domestic product, it is necessary to compare them with the total expenditure on consumption and investment. To do this, we turn to graphical analysis.

On the abscissa axis, we plot the size of the FVP, and on the ordinate axis, the expenditures of the population, enterprises and the state for consumption. Then the points located on the bisector of the coordinate angle will display those states of the economic system in which the volume of FVP will be completely consumed by the population, enterprises and the state. In other words, the total costs at these points will be equal to the corresponding volume of PVP.

Let us now construct a consumption schedule that intersects the bisector at point A, at which the expenditures of the population C will be equal to its consumption. To make our model more realistic, we take into account the costs of enterprises for investments, i.e. Let's add investment spending to the consumer spending of the population. The graph of the total consumption expenditures of the population and enterprises C + Ying intersects the bisector at point B, at which their consumption will be equal to another volume of FVP. Finally, let's add to all these costs the purchase of goods and services by the state. Graph C + Ying + G will cross the bisector at the point where the expenditures of the population, enterprises and the state will be equal to the third volume of FVP.

It can be seen from the figure that whenever the additional costs of investment and government purchases increase, the equilibrium output (NVP) also increases. At point A, where a balance is established between population spending and its consumption, this volume is expressed by the value of OA on the x-axis. At point B, where equilibrium is reached between the expenditures of the population and enterprises, on the one hand, and their consumption of the corresponding volume of NVP, on the other hand, the initial value increases by AB, i.e. makes up a segment with the value ob (. Finally, at the equilibrium point J, where the straight line intersects the bisector, the volume of FVP reaches the value of OE. With an increase in investment and government procurement costs, the corresponding direct consumption and investment shift upward, It is easy to understand that with a decrease in the same public expenditures, there will be a downward shift in the direct total expenditures on consumption, investment and government expenditures.At the same time, the direct expenditure on consumption of the population, containing only one component, is considered as the initial one. Consequently, with an increase in government spending, the macroequilibrium point shifts along the bisector, caused by an upward shift in the direct total spending, and the volume of FVP increases accordingly.With a decrease in such spending, we will get the opposite result.

Government spending thus increases aggregate spending and thereby stimulates aggregate demand, which in turn contributes to an increase in net domestic product (NDP) and ultimately gross domestic product (GDP). It is also clear that government spending, like spending on consumption and investment, contributes to the growth of national production, and therefore should be used as a regulator in the event of a decline in production.

Since, however, the reduction of these costs causes a reduction in production, they should also be applied during booms and inflation in order to maintain macroeconomic stability and employment. In the D. Keynes model, it was government spending that was intended as the main means of macroeconomic regulation, achieving stability and employment. In the framework of fiscal policy, they also play a major role in comparison with taxation. But to understand why this happens, we need to turn to the analysis of the government spending multiplier.

As a result of the previous discussion, I concluded that an increase in government spending leads to an increase in NVP, and hence GDP. Reducing these costs, on the contrary, reduces the equilibrium volume of FVP. Graphically, this can be represented as a movement of the macroequilibrium point along the bisector: in the first case, it moves up, in the second - down. However, the question arises: to what extent does this increase or decrease in the volume of NVP or GDP occur?

Since public expenditures, in principle, do not differ in their effect from other types of total expenditures, for example, from investments, all the arguments that I have previously derived about the investment multiplier fully apply to them. This means that public spending on the purchase of goods and services has a multiplier, or multiplier, effect. But in order to distinguish the public spending multiplier from the investment multiplier, we can designate the first one with the same letter, but adding the index r. Then, by analogy, we can define this multiplier as the ratio of the increment in NDP to the increment in government spending (GR):

Since the gross domestic product differs from the net one taking into account depreciation costs, for it the corresponding multiplier is defined as an increment in GDP in relation to government spending:

Graphically, the multiplier effect can be represented as an increase in the size of NDP or GDP with an upward shift in the direct total spending on consumption, investment and government purchases.

Let's assume that macroequilibrium is established at the point of intersection of this straight line with the bisector at point E. Then the government spending multiplier acts similarly to the investment multiplier. Therefore, it can be defined by analogy with it:

In the example under consideration, I adopted the PSP equal to 3/4, from which the multiplier Kr = 4 was determined. But, as already known, PSP + PSS = 1, it follows that

Taxes are part of fiscal policy, with their help the state regulates the functioning of the market economy. Such regulation is achieved not directly and directly, as with government spending, but indirectly, through the impact on consumption and savings of the population. To better understand this, let's assume that the state introduces a one-time tax on the population in the amount of a million rubles, and the amount of the tax does not depend on the size of the PVP. It is not difficult to understand that in this case the income at the disposal of the population will also decrease by a million rubles. However, now a decrease in income will cause a reduction not only in consumption, but also in the savings of the population. For simplicity of calculations, we assume that in this case the marginal propensity to consume (PSP) and savings (PSS) will be the same, i.e. PSP = PSS = 1/2.

How will this affect the equilibrium volume of FVP? First, spending on consumption will be reduced not by a million rubles, but only by a/2 million, since spending on savings will also fall by half. Secondly, the reduction in spending on consumption will cause a reduction in total spending, which also includes spending on investment and government purchases. As a result, the schedule of total expenditures will move down.

Accordingly, the volume of the equilibrium FVP also decreases. Therefore, if at point E it was equal to h million rubles, then at point E e at which the new graph crosses the bisector, it will be b - a / 2 million rubles. From this it becomes clear why an increase or decrease in taxes has a smaller impact on the volume of domestic production than government spending on the purchase of goods and services. Such expenditures form part of total expenditures and therefore, along with consumption and investment, they characterize aggregate demand and, therefore, directly affect the volume of domestic production.

With the growth of government purchases, demand increases, and thereby a further increase in production is stimulated. A change in taxes - their increase or decrease - directly affects one of the components of total expenditure, namely, consumption. Therefore, taxes, although they have a multiplier effect, but their impact on the equilibrium volume of production affects indirectly, through consumption, and in magnitude it is less than government spending.

In order to quantify the impact of taxes on the equilibrium volume of NVP, we introduce the concept of the tax multiplier K n, which can be defined through the already known concept of the public spending multiplier K g. Indeed, since taxes affect the volume of NVP through consumption, the value this impact will be less than the government spending multiplier by the marginal propensity to consume (PSP):

K n \u003d PSP * K g

In our example, taxes have increased by a million rubles, the PSP is 1/2. Substituting these values ​​into the formula, we get K n \u003d a / 2 million rubles. For comparison, let's find the value of the multiplier of government spending when they are halved, i.e. per a/1 mln rub.

From this it can be seen that with the value of the multiplier K r = 2, a decrease in government spending by a / 2 million rubles. leads to a decrease in the equilibrium volume of NVP by a million, and their increase by the same amount - to an increase by a million. unit of taxes shifts this graph down by 1/2 unit. Ultimately, with an increase in government spending, the equilibrium volume of FVP increases by the value of the multiplier of these costs, and with an increase in taxes, it decreases by the value of the tax multiplier.

If government spending and taxes increase by the same amount, then the equilibrium volume of FVP increases by the same amount. Let's assume that state purchases increased by about a million rubles. Then, with a multiplier equal to 2, the increment in the volume of FVP will be 2c million, and the aggregate demand curve will shift upwards by from units. At the same time, an increase in taxes will lead to a shift in aggregate demand by c / 2 million and a decrease in the equilibrium volume of NVP only by c million. Thus, the same increase in government spending and taxes will cause an increase in NVP by an amount equal to the growth government spending or taxes. From this we can conclude that the multiplier of the joint action of government spending and taxes is equal to one, because in this case the increment in NVP is equal to the initial increment in expenditures or taxes.

Such a multiplier is called in the economic literature the balanced budget multiplier. Let us note that it does not affect government spending and taxes in isolation, but at the same time, because the reduction in NVP caused by an increase in taxes is offset by an increase in government spending, and thus ensures overall growth in NVP.

Now imagine a situation where the increase in taxes will not affect the size of PVP. For this, it is sufficient that the reduction in output caused by taxes is exactly balanced by the impact of government spending, which will increase the volume of NVP. So, if taxes are increased by a million rubles, then NVP will decrease by 0/2 million and its increment will become equal to zero; if we increase government spending by a / 2 million rubles, which, with a multiplier equal to 2, will give an increment equal to a million rubles. It is obvious that society is by no means interested in such stagnation.

Until now, I have considered only the effect on the equilibrium volume of production of consumption costs, i.e. only one part of the income received. Another part of this income is savings, and they obviously also affect the output.

For ease of analysis, let's assume that investments in this case will be constant, and there will be no government spending and taxes. In such an idealized situation, it is easier to identify the relationship between the change in savings and the volume of equilibrium NVP. Obviously, the more money goes to savings, the less money is left for the purchase of goods and services. In the end, a situation may arise when the population is convinced by its own experience that excessive accumulation of savings can lead to a drop in production and, as a result, a decrease in its income or even to poverty.

Let's turn to graphical analysis. Let the size of the FVP be displayed on the abscissa axis, and the size of investments and savings on the ordinate axis. Since we assumed that the size of investments remain constant, their graph will be depicted as a horizontal line parallel to the x-axis.

Let us assume that the amount of savings increased by a million rubles. Then the savings schedule will shift up by a units. The initial state of macroequilibrium at point E 1 corresponds, say, to the volume of FVP = b million rubles. The new state of macroequilibrium at point E will correspond to FVP = b-2a million rubles. at PSP = PSS = 1/2.

Thus, an increase in savings due to the multiplier effect will cause a reduction in the volume of equilibrium NVP compared to savings by b -2a million rubles. Hence it is clear that the reduction in the volume of domestic production is accompanied by a decrease in the income of the population. This situation can continue until, finally, the population realizes that the desire for savings does not make it richer, but poorer. This statement does not apply to the case when there is full employment and production is operating at the maximum level.

Under these conditions, thrift is expedient and benefits both society and the individual. Indeed, to maintain a high level of production and full employment, constant investment is needed. And they are possible only when society consumes less and saves more. This situation is described by the classical economic model, which focuses on full employment and a stable volume of production. Graphically, this model can be represented as follows: since savings are growing, and current consumption is falling, so are the prices of rice goods. 1. But at the same time, the entire volume of manufactured products is still sold in full, albeit at lower prices, and therefore the volume of FVP and employment remain stable. The decline in aggregate demand is shown by shifting down the schedule of aggregate demand.

In the Keynesian model, an increase in savings also leads to a reduction in aggregate demand, but at the same time, the volume of domestic production does not remain constant, but decreases, which causes underemployment. Under these conditions, the growth of savings can only increase the decline in production and unemployment.

2. Features of fiscal policy in the Russian Federation

2.1 The need to reform fiscal policy

10-year period of market transformation in Russia allowed, finally, to develop a clear view on the direction of reforming the financial system. As noted above, the choice of a set of tax measures of state influence on the national economy depends on what segment of the aggregate supply curve it is currently on. Today (as well as during the entire period of reforms), the Russian economy is on the "Keynesian" segment, that is, in that phase of development when production has not yet reached the level of full employment. Consequently, the task of state regulation should not be to limit aggregate demand (which already has very narrow boundaries), but to stimulate its expansion.

Throughout the entire period of reforms, a number of fundamental mistakes were made in the formation of the state's tax strategy. It turned out that the features of the object of reform - the Russian economy - were not taken into account. A certain semblance of monetarism was mistakenly chosen as a theoretical basis, distorted beyond recognition when applied to Russian reality. It can be argued that a real monetary policy was never carried out (it is worth noting at least the administratively carried out “liberalization” of prices and the constantly growing tax bill).

The miscalculations made can be largely justified by the fact that the problems of transition from a centralized administratively controlled state to a regulated market economy are the least developed both from the point of view of theory and from the point of view of the practical formation and implementation of economic policy. Those models of the transition period that have been tested in the countries of Eastern Europe and South America have not been able to prevent a transformational decline there, and their automatic transfer to Russian soil could not give positive results. The practical version of the transformation in Russia turned out to be, as you know, far from any model that existed at that moment, and it differed not for the better.

The entry of the Russian economy into the phase of market relations is marked by a sharp increase in inflationary tendencies. The repeated rise in prices put forward the development and implementation of anti-inflationary measures as the basis for creating a favorable production and investment climate as a priority. The growth of inflationary processes during the transition period led to a sharp aggravation of budgetary funds and an increase in the state budget deficit, which objectively forced government authorities to raise taxes. The presence of a cumbersome public sector, bearing the burden of disproportions and structural distortions of the socialist economy, made it necessary to maintain a high level of public spending, which required an appropriate revenue side, formed mainly from tax revenues.

Thus, the formation of the financial system in Russia took place in an environment that made it impossible to create it on the basis of the long-term tasks of reforming the economy, and not momentary expediency. It is very difficult to find a constructive way out of this situation, since the budget crisis makes it extremely difficult to reduce the tax burden. However, under the current conditions, even high tax rates cannot solve the problem of budget deficit, and can only completely undermine the financial incentives of enterprises.

In practice, this is what happened. The growth of the tax burden provoked a sharp narrowing of the number of solvent agents (by 1998, the share of unprofitable enterprises in the real sector as a whole was 53%), as well as an increasing number of manufacturers going into the shadows. The course of the transitional economy / Ed. acad. L. I. Abalkina - M .: ZAO Finstatinform, 2001, With. 306

The tax burden was especially acute during a period of high inflation, when tax withdrawals were accompanied by the payment of inflationary taxes by firms, which further cut financial sources of reimbursement of production costs and savings.

Inflation, combined with a decline in production and sharp fluctuations in the market situation, has put the formation of a rational tax system in the category of the highest priority tasks. However, the choice of a package of tax instruments (as well as recommendations on other areas of reform - price liberalization, monetary and foreign exchange regulation) took place in isolation from the objective conditions and needs of economic development. Today it is obvious that the existing tax strategy needs a change of priorities, and the tax system needs significant liberalization. The restrictive, fiscal nature of the system formed at the stage of reforms, its overload with an excessive amount of taxes and a too high level of tax burden, the intricacy of legislation played an important role in deepening the transformational crisis and criminalizing the economy.

The tightening of the tax policy, accompanied by the formation of a rigid budgetary financing system, is a constant direction of the activity of economic bodies during the transition period (while the country needed the opposite). At the moment, the fiscal orientation of the tax system is still the most important obstacle to economic recovery and the growth of business and investment activity.

The tax system in its current form creates obstacles even to simple reproduction, not to mention expanded, therefore its liberalization is a vital step, the implementation of which has been delayed for a number of years. This is largely due to the fact that even today there is still no evidence-based concept of reform.

For its successful implementation, it is necessary to develop a common strategy, within which such blocks of the economic mechanism as pricing and investment policy, a set of measures to create a class of effective owners (including the formation of legal support and protection), financial and monetary policy, tax strategy, measures for social protection of the population, etc.

2.2 Ways and methods of improving the fiscal politicians

The theoretical basis for the formation of financial strategy in Russia at the moment and in the future can be a reasonable, balanced Keynesianism. At this stage, the boundaries of indirect state intervention in the economy need to be expanded (especially in the field of tax regulation). The market mechanism is not able to independently expand the narrow boundaries of solvent demand associated with barter and high taxes. Establishing an overestimated level of tax exemption provokes enterprises to a massive search for legal and semi-legal ways to evade taxes.

The tax system that stimulates the development of production and earning income is a stable and proven factor in economic growth. The political leadership of the country realized the need for a radical transformation of the tax system. The action plan of the Government of the Russian Federation in the field of social watering and modernization of the economy for 2002-2003 identified priority tasks. The dominant macroeconomic policy is tax reform. For the first time, its objectives reflect in a balanced way the need to improve the investment climate and achieve a state budget surplus, a significant reduction and equalization of the tax burden. It can be argued that the task has been set to harmonize the long-term interests of the state, civilized entrepreneurs and the majority of the population.

Legislative basis of the reform -- the Tax Code (the second part in the volume of four chapters), signed by the President, came into force on January 1, 2001.

Let's try to analyze the economic and political conditions that have formed in the country by the time the new stage of tax reform began. First of all, we note the features of the interaction of economic and tax policies. The revival of the economy contributes to the expansion of the tax base, increasing the collection of taxes in "live" money. On the other hand, the introduction of an optimal taxation system stimulates production growth.

Over the past 2.5 years, the Government has finally managed to break the circle of non-payments, in which one ruble of non-fulfillment of budget obligations generated 3.5-4 rubles. non-payments in the economics of the country. This can largely explain the improvement in tax collection in the country. The main event of 1999 for the Ministry of Taxation of Russia was the cessation of the fall and the beginning of the growth of receipts of "live" money in the budget. In the consolidated budget, including the revenues of target budget and state off-budget funds, in 1999, 1044.0 billion rubles were collected. taxes and fees. In the form of "live" money, 793.4 billion rubles were received, or 76% of all receipts. Is the current tax policy effective / Finance, No. 10, 2002, p. 26 In the federal budget, the growth rate of receipts of "live" money outstripped the corresponding indicators for the total collection of revenues to the budget.

On the other hand, it was not the devaluation of the ruble, not high export prices for raw materials, but, above all, the real reduction in the tax burden, government spending and the actual elimination of the current budget deficit were the main reasons for the economic recovery in Russia. Today, economists agree that the main factor in the stable functioning of the economy is the tax policy of the state. Research by the Institute for Economic Analysis led to the conclusion that in order to achieve maximum growth rates, it is necessary in a market economic system to have low parameters of the state fiscal burden on the economy.

An important condition for the implementation of a new stage of tax reform is the trend towards the formation of new standards of business ethics among participants in Russian business. In the nineties, it was believed that the possibility of tax evasion and the export of assets abroad are the norm of business ethics. Currently, there are fresh shadows ........

Macroeconomic regulation of the economy includes two components:

1. Monetary policy (see earlier);

2. Fiscal policy of the state (fiscal policy) - a set of government measures to regulate public spending and taxation.

fiscal policy- this is state regulation of the economy, carried out by the government with the help of taxes and public spending. The purpose of fiscal policy is to accelerate economic growth; control over employment and inflation; counteraction to economic crises and their smoothing.

Leverage of fiscal policy:

1. Change in tax rates;

2. Change in the volume of public procurement;

3. Change in the volume of transfers.

Depending on the phase in which the economy is located, there are two types of fiscal policy:

1. Stimulating;

2. Restraining.

Stimulating (expansive) fiscal policy It is used during a decline in production, during high unemployment, with low business activity. It is aimed at increasing the volume of production and employment of the population through: 1. increasing government purchases and transfers, 2. reducing taxes.

Schematically, the effect of stimulus policy is as follows:

Action 1: Government purchases increase. As a result, aggregate demand rises and output increases.

2 action. Taxes are going down. As a result, the aggregate supply increases, while the price level decreases.

Restraining (restrictive) policy applied during an economic boom. It is aimed at curbing business activity, reducing the volume of production, eliminating excess employment, reducing inflation through:

1. Reducing government purchases and transfers;

2. Tax increases.

Schematically, the effect of a restraining policy is as follows:

1. Action: cut government purchases. As a result, aggregate demand decreases and output decreases.

2. Action. Taxes are increasing. As a result, the aggregate supply on the part of entrepreneurs and the aggregate demand on the part of households decrease, while the price level increases.

Depending on the method of impact of fiscal policy instruments on the economy, there are:

1. Discretionary fiscal policy;

2. Automatic (non-discretionary) fiscal policy.

Discretionary fiscal policy represents conscious legislative change government purchases (G) and taxes (T) in order to stabilize the economy. These changes are reflected in the state budget.

When working with the “public procurement” tool, a multiplier effect may occur. The essence of the multiplier effect is that the increase in state. spending in the economy leads to an increase in national income by b O greater value (multiplier multiplier expansion of national income).

The multiplier formula "state. purchases":

Y=1=1

G 1 - MPS MPS

where, ?Y - income growth; ?G - growth of state. procurement; MPC - marginal propensity to consume; MPS is the marginal propensity to save.

Hence? Y G = 1 ? ?G

The influence of taxes on the volume of national income is carried out through the mechanism of the tax multiplier. The tax multiplier has a much smaller effect on reducing aggregate demand than the government spending multiplier on increasing it. An increase in taxes leads to a reduction in GDP (national income), and a decrease in taxes - to its growth.

The essence of the multiplier effect is that with tax cuts, there is a multiple (multiplier) expansion of total income and planned spending on the part of consumers and an increase in investment in production on the part of entrepreneurs.

Tax multiplier formula:

Y = - MPC = - MPC

T MPS 1 - MPS

where, ?T - tax increase

Hence? Y T = - MRS ? ?T

Both instruments can be applied simultaneously (combined fiscal policy). Then the multiplier formula takes the form:

Y = ?Y G + ?Y T = ?G ? (1 - MPC) / (1 - MPC) = ?G ? one

A combined policy can lead to either a budget deficit (if the country is in an economic downturn) or a budget surplus (if the country is in an economic recovery).

The disadvantage of discretionary fiscal policy is that:

1. There is a time lag between decision-making and their impact on the economy;

2. There are administrative delays.

In practice, the level of public spending and tax revenues may change even if the government does not make appropriate decisions. This is explained by the existence of built-in stability, which determines the automatic (passive, non-discretionary) fiscal policy. Built-in stability is based on mechanisms that operate in a self-regulating mode and automatically respond to changes in the state of the economy. They are called built-in (automatic) stabilizers.

Non-discretionary fiscal policy (automatic)- this is a policy based on the action of built-in stabilizers (mechanisms) that automatically soften fluctuations in the economic cycle.

Built-in stabilizers include:

1. Change in tax revenues. The amount of taxes depends on the income of the population and enterprises. In a period of decline in production, revenues will begin to decrease, which will automatically reduce tax revenues to the budget. Consequently, the income remaining with the population and enterprises will increase. This will, to a certain extent, slow down the decline in aggregate demand, which will positively affect the development of the economy.

The progressiveness of the tax system has the same effect. With a decrease in the volume of national production, incomes are reduced, but tax rates are also reduced, which is accompanied by a decrease in both the absolute amount of tax revenues to the treasury and their share in society's income. As a result, the fall in aggregate demand will be softer;

2. The system of unemployment benefits. Thus, an increase in the level of employment leads to an increase in taxes, through which unemployment benefits are financed. With a decline in production, the number of unemployed increases, which reduces aggregate demand. However, at the same time, the amounts of unemployment benefits are also growing. This supports consumption, slows down the fall in demand and therefore counteracts the escalation of the crisis. In the same automatic mode, the systems of indexation of income and social payments operate;

3. Fixed dividend system, farm assistance programs, corporate savings, personal savings, etc.

Built-in stabilizers dampen changes in aggregate demand and thus help stabilize national product output. It is thanks to their action that the development of the economic cycle has changed: recessions in production have become less deep and shorter. Previously, this was not possible, as tax rates were lower and unemployment benefits and welfare payments were negligible.

The main advantage of a non-discretionary fiscal policy is that its tools (built-in stabilizers) are activated immediately at the slightest change in economic conditions, i.e. there is practically no time lag.

The disadvantage of automatic fiscal policy is that it only helps to smooth out cyclical fluctuations, but cannot eliminate them.

To find out whether the fiscal policy pursued by the government is correct, it is necessary to evaluate its results. Most often, the state of the state budget is used for this purpose, since the implementation of fiscal policy is accompanied by an increase or decrease in budget deficits or surpluses.

Fiscal policy is the 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 the government's policy of regulating, above all, aggregate demand. The regulation of the economy in this case occurs through the impact on the amount of total costs. However, some fiscal policy instruments can also be used to influence the aggregate supply through the impact on the level of business activity. Fiscal policy is carried out by the government. Fiscal policy can both beneficially and quite painfully affect the stability of the national economy.

Fiscal policy is aimed at resolving the numerous tasks facing society, which form the so-called goal tree. The main ones are:

• 1. in the short term:
  • - effective formation of the revenue part of the budget;
  • - implementation of the state budget policy;
  • - taking measures to reduce the budget deficit;
  • - public debt management;
  • - Smoothing out cyclical fluctuations in the economy.
• 2. in the long run:
  • - maintaining a stable level of total output (GDP);
  • - maintaining full employment of resources;
  • - maintaining a stable price level.

Figure 1.1 - Fiscal policy objectives

Appendix- A source:

Modern fiscal policy determines the main directions for the use of the state's financial resources, methods of financing and the main sources of replenishment of the treasury. Depending on the specific historical conditions in individual countries, such a policy has its own characteristics. However, a common set of measures is used. It includes direct and indirect financial methods of economic regulation.

Direct methods include methods of budgetary regulation. The state budget finances:

• - the cost of expanded reproduction;
• - unproductive expenses of the state;
• - development of infrastructure, scientific research, etc.;
• - implementation of structural policy;
• - maintenance of the military-industrial complex, etc.

With the help of indirect methods, the state influences the financial capabilities of producers of goods and services and the size of consumer demand.

The taxation system plays an important role here. By changing tax rates for various types of income, providing tax incentives, reducing the non-taxable minimum income, etc., the state seeks to achieve the most sustainable economic growth rates and avoid sharp ups and downs in production.

Accelerated depreciation policies are among the important indirect methods that promote capital accumulation. In essence, the state exempts entrepreneurs from paying taxes on part of the profits artificially redistributed to the sinking fund.

The above goals are also achieved through fiscal policy instruments, which include:

• - tax regulators: manipulation of various types of taxes and tax rates, their structure, objects of taxation, sources of taxes, benefits, sanctions, terms of collection, methods of payment;
• - budget regulators: the level of centralization of funds by the state, the ratio between the federal or republican and local budgets, the budget deficit, the ratio between the state budget and extra-budgetary funds, the budget classification of income and expenditure items, etc.

The most important comprehensive tool and indicator of the effectiveness of fiscal policy is the state budget, which combines taxes and expenditures into a single mechanism.

Different tools affect the economy in different ways. Government purchases form one of the components of total costs, and, consequently, demand. Like private spending, public procurement increases the level of total spending. In addition to public procurement, there is another type of government spending. Namely, transfer payments. Transfer payments indirectly affect consumer demand by increasing household disposable income. Taxes are an instrument of negative impact on total spending. Any tax means a reduction in disposable income. A decrease in disposable income, in turn, leads to a reduction not only in consumer spending, but also in savings.

The impact of fiscal policy instruments on aggregate demand is different. From the aggregate demand formula:

AD = C + I + G + Xn , (1.1)

where C is the value of consumer spending;

I - investment costs;

G - public procurement;

Xn - taxes and transfers.

It follows that government purchases are a component of aggregate demand, so their change has a direct impact on aggregate demand, while taxes and transfers have an indirect impact on aggregate demand, changing the amount of consumer spending and investment spending.

At the same time, the growth of government purchases increases aggregate demand, and their reduction leads to a decrease in aggregate demand, since government purchases are part of total spending.

The 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, ceteris paribus, disposable income increases, which increases consumer spending. On the other hand, an increase in transfer payments to firms (subsidies) increases the possibilities for internal financing of firms, the possibility of expanding production, which leads to an increase in investment costs. Reducing transfers reduces aggregate demand.

Increasing taxes works in the opposite direction. An increase in taxes leads to a reduction in both consumer spending (because disposable income is reduced) and investment spending (because retained earnings, which are the source of net investment, are reduced) and, consequently, to a reduction in aggregate demand. Accordingly, tax cuts increase aggregate demand, which leads to 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 a simple Keynesian model (the “Keynesian Cross” model) it follows that all fiscal policy instruments (government purchases, taxes and transfers) have a multiplicative effect on the economy, therefore, according to Keynes and his followers, economic regulation should be carried out by the government with using fiscal policy instruments, and above all, by changing the amount of public purchases, since they have the greatest multiplier effect.

Depending on the phase of the cycle in which the economy is located, fiscal policy instruments are used in different ways. There are two types of fiscal policy:

• 1) stimulating;
• 2) restraining.

Figure 1.2 - Types of fiscal policy

Note- A source:

An expansionary fiscal policy is applied during a downturn (Figure 1.2(a)), aims to narrow the recessionary output gap and reduce unemployment, and aims to increase aggregate demand (aggregate spending). Her tools are:

• - increase in public procurement;
• - tax cuts;
• - increase in transfers.

Contractionary fiscal policy is used during a boom (when the economy overheats) (Figure 1.2 (b)), aims to reduce the inflationary output gap and reduce inflation, and is aimed at reducing aggregate demand (aggregate spending). Her tools are:

• - reduction of public procurement;
• - increase in taxes;
• - reduction of transfers.

In addition, there are fiscal policies:

• 1) discretionary;
• 2) automatic (non-discretionary).

Discretionary fiscal policy is a legislative (official) change by the government of the amount of government purchases, taxes and transfers in order to stabilize the economy.

Automatic fiscal policy is associated with the action of built-in (automatic) stabilizers. Built-in (or automatic) stabilizers are instruments whose value does not change, but whose very presence (embedded in the economic system) automatically stabilizes the economy, stimulating business activity during a downturn and restraining it during overheating. Automatic stabilizers include:

• - Income tax (which includes both household income tax and corporate income tax);
• - indirect taxes (primarily value added tax);
• - unemployment benefits;
• - poverty benefits.

Let us consider the mechanism of impact of built-in stabilizers on the economy.

The income tax works as follows: during a recession, the level of business activity (Y) decreases, and since the tax function has the form:

Т = t * Y , (1.2)

where T is the amount of tax revenues;

t is the tax rate;

Y - the value of total income (output),

then the amount of tax revenues decreases, and when the economy "overheats", when the value of actual output is maximum, tax revenues increase. Note that the tax rate remains unchanged. However, taxes are withdrawals from the economy that reduce the flow of spending and hence income (remember the circular flow model). It turns out that withdrawals are minimal during a recession, and maximal during overheating. Thus, due to the presence of taxes (even lump-sum, i.e. autonomous) the economy, as it were, automatically “cools down” when it overheats and “warms up” during a recession. The appearance of income taxes in the economy reduces the value of the multiplier (the multiplier in the absence of an income tax rate is greater than in its presence: > ), which enhances the stabilization effect of the income tax on the economy. It is obvious that a progressive income tax has the strongest stabilizing effect on the economy.

Value Added Tax (VAT) provides built-in stability in the following way. During a recession, sales decrease, and since VAT is an indirect tax, part of the price of a product, when sales fall, tax revenues from indirect taxes (withdrawals from the economy) decrease. In overheating, on the other hand, as total income rises, sales increase, which increases revenue from indirect taxes. The economy will automatically stabilize. fiscal policy capital economy

With regard to unemployment and poverty benefits, the total amount of their payments increases during a recession (as people begin to lose their jobs and become poor) and decrease during a boom, when there is “overemployment” and income growth. Obviously, in order to receive unemployment benefits, you need to be unemployed, and to receive poverty benefits, you need to be very poor. These benefits are transfers, i.e. injections into the economy. Their payment contributes to the growth of income, and, consequently, expenses, which stimulates the recovery of the economy during a recession. A decrease in the total amount of these payments during a boom has a moderating effect on the economy.

In developed countries, the economy is regulated by 2/3 through discretionary fiscal policy and 1/3 through built-in stabilizers.

It should be borne in mind that such fiscal policy instruments as taxes and transfers act not only on aggregate demand, but also on aggregate supply. As already noted, tax cuts and increased transfers can be used to stabilize the economy and combat cyclical unemployment during a downturn, stimulating aggregate spending and hence business activity and employment. However, it should be borne in mind that in the Keynesian model, simultaneously with the growth of aggregate output, tax cuts and an increase in transfers cause an increase in the price level (from P 1 to P 2 in Figure 1.2 (a)), i.e. is a pro-inflationary measure (provokes inflation). Therefore, during a boom (inflationary gap), when the economy is “overheated” (Figure 1.2 (b)), as an anti-inflationary measure (the price level decreases from P 1 to P 2) and tools to reduce business activity and stabilize the economy, an increase in taxes and reduction in transfers.

However, since firms treat taxes as a cost, an increase in taxes leads to a reduction in aggregate supply, and a reduction in taxes leads to an increase in business activity and output. A detailed study of the impact of taxes on aggregate supply belongs to the economic adviser to US President R. Reagan, an American economist, one of the founders of the concept of "economic theory of supply" Arthur Laffer. A. Laffer built a hypothetical curve (Figure 1.3), with the help of which he showed the impact of a change in the tax rate on the total amount of tax revenues to the state budget. This curve is called hypothetical because Laffer made his conclusions not on the basis of an analysis of statistical data, but on the basis of a hypothesis, i.e. logical reasoning and theoretical reasoning.

Figure 1.3 - Laffer Curve

Along with monetary policy, fiscal policy is the most important component of the macroeconomic policy of the state. fiscal policy called the system of state regulation, carried out through government spending and taxes. Its main purpose is to smooth out the shortcomings of the market mechanism, such as cyclical fluctuations, unemployment, inflation by influencing aggregate demand and aggregate supply.

Depending on the phase of the cycle in which the economy is located, there are two types of fiscal policy: stimulating and restraining.

Stimulating (expansionary) fiscal policy is applied during recession, is aimed at increasing business activity and is used as a means of combating unemployment.

Measures of stimulating fiscal policy are:

Increase in government purchases;

Tax cuts;

Increase in transfer payments.

Restraining (restrictive) fiscal policy used when the economy "overheats", it is aimed at reducing business activity in order to combat inflation.

Measures of restrictive fiscal policy are:

Reducing public procurement;

Increasing taxes;

Decrease in transfer payments.

According to the method of influencing the economy, discretionary fiscal policy and automatic fiscal policy are distinguished.

Discretionary (flexible) fiscal policy is a legislative manipulation of the value of government purchases, taxes and transfers in order to stabilize the economy. These changes are reflected in the main financial plan of the country - the state budget.

Automatic (non-discretionary) fiscal policy based on the action of built-in (automatic) stabilizers. Built-in stabilizers are economic instruments, the value of which does not change, but the very presence of which (their integration into the economic system) automatically stabilizes the economy. Built-in stabilizers automatically work in a restrictive way during an upturn in the economy and in a restraining way during a downturn in the economy. Automatic stabilizers include income taxes; indirect taxes; unemployment benefits and poverty benefits. Built-in stabilizers correct but do not eliminate fluctuations in economic activity. Therefore, methods of automatic fiscal policy should be supplemented by methods of discretionary policy.

The Keynesian model of economic equilibrium connects the stabilizing role of fiscal policy with its impact on the equilibrium volume of national production through changes in total spending. Let us consider the mechanism of action of fiscal policy on the equilibrium volume of national production through a simplified model of the economy, which assumes price stability; reduction of all taxes to a net individual tax; independence of investments from the value of national production and the absence of exports. Government spending directly affects the macroeconomic balance, since government spending is one of the elements of aggregate demand. Their increase has exactly the same effect on the equilibrium level of output as an increase in investment expenditures by the same amount:

where MP G is the government spending multiplier.

An increase in government spending causes an increase in total spending, increasing the equilibrium level of output and employment (14.2).

During a recession, an increase in government spending can be used to increase output, while during a period of economic overheating, on the contrary, a decrease in their level will reduce both aggregate demand and output.

Rice. 14.2. The impact of government spending on macroeconomic equilibrium.

The impact of taxes on macroeconomic equilibrium is not carried out directly, but indirectly through such an element of total expenditure as consumption. Therefore, the multiplier effect of taxes is lower than the multiplier effect of government spending:

where MP T is the tax multiplier.

Ceteris paribus, an increase in taxes will reduce consumer spending. The consumption schedule will shift down and to the right, which will lead to a reduction in national production and employment (Fig. 14.3.).

Rice. 14.3. The impact of taxes on macroeconomic equilibrium

An increase in government spending and taxes by the same amount leads to an increase in output. This effect is called balanced budget multiplier.

Fiscal policy is not able to fully stabilize the economy, as it has the following disadvantages:

1. The delayed impact of fiscal policy on the functioning of the national economy. There are gaps in time between the actual start of a recession or recovery, the moment of recognition, the moment decisions are made and the results are achieved.

2. The value of the multiplier at any given moment of time is not exactly known. Accordingly, it is also impossible to accurately calculate the results of fiscal policy.

3. Fiscal policy can be used for political purposes and condition political business cycles. Political business cycles are actions that destabilize the economy by cutting taxes and increasing government spending during election campaigns and by increasing taxes and reducing government spending after elections.

Basic concepts

Control and discussion questions

1. Between whom are there financial relations?

2. What are the main functions of finance.

3. What is meant by centralized finance?

4. What is the structure of the state budget? What types of public spending can be considered in terms of the problem of positive externalities? What is the compromise of the state budget?

5. Expand the concept of fiscal federalism.

6. What can be the state of the state budget? How to measure the government budget deficit? Expand the concept of balancing the budget deficit.

7. What is the best way to finance the budget deficit in an inflationary economy?

8. Why is domestic public debt called a debt to ourselves?

9. Why is high public debt dangerous?

10. What are the main difficulties in using the principle of solvency in the functioning of the modern tax system?

11. Why is corporate income tax linked to the problem of double taxation?

12. Which gives a more accurate idea of ​​the tax burden: the marginal tax rate or the average tax rate?

13. Give examples of direct and indirect taxes.

14. What is the relationship between the growth of tax rates, state budget revenues and the tax base?

15. Can built-in stability be considered as a sufficient condition for the successful functioning of the fiscal system? Is there a need for discretionary policy?

16. If government spending and taxes increase at the same time by the same amount, what will happen to output?

17. Why are supporters of supply-side economics more focused on tax cuts when conducting stimulating fiscal policy than supporters of demand-side economics (Keynesians)?