Fiscal policy is an important macroeconomic policy to promote the economy effectively. So What is fiscal policy?? Let's find out with us right now.
Concept of fiscal policy
For more investment knowledge As well as better understanding fiscal policy, let's first learn together fiscal policy What is that ok
It can be said that fiscal policy, or in English also known as Fiscal policy, is considered as government intervention measures on the tax system as well as government spending with the aim of achieving the goals of a macro economy such as promoting economic growth, creating jobs or stabilizing prices as well as controlling inflation effectively.
And it is a fact that only the government has the right and the function to enforce these laws. macroeconomic fiscal policy.
Purpose of fiscal policy
After grasping the concept What is fiscal policy? Then you should also learn about the goals of this policy. And it can be affirmed that the policy of fiscal policy is to regulate and promote economic growth, reduce unemployment rate as well as control inflation.
This is a tool to support the government in regulating the economy. It can be said that fiscal policies have the ability to impact globally and through that, it will be able to impact economic activities and specifically shown as follows:
- Under normal operating conditions, fiscal policy has the potential to influence the adjustment. Aggregate Demand and Fiscal Policy which will help increase the economy.
- In the case where the economy is showing signs of recession or over-development, also known as overheating, fiscal policy will be able to intervene to adjust aggregate demand down and thereby help bring the economy back to a state of balance and normality.
Impact of fiscal policy help reduce unemployment but also help increase employment opportunities. Fiscal policy plays a very important role in supporting the government to be able to distribute jobs more effectively, effectively allocate economic resources through two main tools, which are government spending and tax tools. It can be seen that reducing taxes, fees or investment to promote public, creating seed capital to contribute to promoting businesses to be able to grasp production or business opportunities and then from there can help create more job opportunities to help reduce the unemployment rate. In addition, tax reduction also has the effect of stimulating people's spending, thereby promoting demand as well as more goods and services and it will contribute to creating many new job opportunities.
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In addition, maintaining price stability in the market or controlling inflation are also the goals that fiscal policy is aiming for. By increasing taxes as well as reducing government spending, the government can limit the demand for more goods and services and increase the ability to control inflation. This will ensure that the value in the economy can be stable and under control, thereby creating a safer environment to increase investment and development.
Fiscal policy trends
The state of the economy includes three main types: the state when the economy is growing normally, the economy is growing excessively and the economy is falling into recession. And accordingly, there will be fiscal policies that are managed depending on the trends and viewpoints of each government along with the specific macroeconomic context.
And the fiscal policy trends will include the following policies: neutral fiscal policy, expansionary fiscal policy and contractionary fiscal policy. Let's learn about these three types of policies together.
Neutral fiscal policy
It can be said that neutral fiscal policy is a type of fiscal policy that needs to balance the budget or can also be understood in the sense that government spending will be equal to tax revenue or also known as G = T. And at this point, government spending will be completely financed from its own revenue and in general, it will have a neutral impact on the level of economic activities in the market.
Expansionary fiscal policy
And expansionary fiscal policy is considered a policy that helps increase government spending, also known as G > T, through expanding spending or reducing tax spending, or a combination of both.
In the case where the economic conditions are becoming recessionary, the government will increase spending and reduce taxes to increase aggregate demand, which will help increase the total national income as well as economic growth. And during the implementation process, the government will have to control it tightly, otherwise it may lead to a consequence that is the formation of inflation. And these policies will often be applied to promote economic development and at the same time create more job opportunities for everyone.
Contractionary fiscal policy
It can be said that contractionary fiscal policy or also known as a government spending tightening policy also known as G < T, through reducing spending or increasing government revenue. And tight fiscal policy will often be used in cases where the economy is developing excessively, developing too hot to be able to restrain the excessive development of the economy, besides that, it is also a way to control inflation.
The government will reduce public spending as well as increase taxes, then aggregate demand will be reduced, thereby leading to a decrease in national income and also effectively reducing economic growth and reducing inflation.
Understanding the current state of fiscal policy in Vietnam
So Fiscal policy status in Vietnam How is it going?
It can be said that the current fiscal policy in Vietnam has achieved many positive results, but it is still facing many challenges. It can be seen that the state budget revenue is still growing steadily thanks to effective management as well as economic recovery, but recurrent expenditure still accounts for a large proportion and that has put pressure on development investment capital sources. In addition, the budget deficit has been better controlled, and public debt has gradually decreased thanks to restructuring and effective management, but it still needs to be focused on more to ensure long-term sustainability.
In addition, corporate investment is the focus but it is not very effective, with many projects being slow to disburse, causing a waste of resources. And the government is also promoting stimulus packages as well as supporting businesses and people, but the implementation is not very uniform between localities.
Faced with the context of many fluctuations in the global economy, Vietnam needs to continue to balance short-term support as well as ensuring long-term fiscal sustainability. In order to promote economic growth more effectively, Vietnam also needs to proactively use fiscal policy to promote increased growth momentum in the period from 2024 to 2025. However, these fiscal policies also need to be used in combination with other economic policies plus the general institutional reform process, only then can the promotion be most effective.
Hopefully with what HVA The provision will be able to help investors grasp What is fiscal policy? as well as understand the information related to this type of macroeconomic policy. Hopefully investors can reap much success in the future.
