Impact Of Fiscal Policy

On Business
By :
Ashwin.B
Avishek Kumar
Singh

Fiscal Policy
Government
Spending

Taxation

Fiscal policy
It is the use of government revenue
collection(mainly taxes) and
expenditure (spendings) to influence
the economy.
It can be used to stabilize the
economy over the course of the
business cycle.

Objectives:
Full employment
Price stability
Accelerating the rate of economic
development
Optimum allocation of resources
Equitable distribution of income and
wealth

Increase Spending
1.
2.
3.
4.

Increases demand for goods

More demand = more production
More production = more jobs
More jobs = more demand etc. etc.

Decreasing Taxes
1. Gives people more money to spend
2. More money = more demand
3. More demand = more production
4. More production = more jobs
5. More jobs = more demand etc. etc.

TAX REFORM AND IMPLICATION FOR SMALL

BUSINESSES
Options :

Obstacles:

Individual and/or corporate

focus

Special interests

Budget neutral or raise

revenues
Targeted approach or
comprehensive

Politics and elections

Small Business In India

99.7% of Indian firms with < 500
employees
64% of the new net jobs in the
private sector
46% of private-sector output

Impact On
Businesses

Consumer
Demand/Spending

Consumer spending is a major

driving force behind economic
success.
Amount of disposable income people
have to spend.
Lower taxes leave more money in
consumers' pockets to spend on
goods and services.
Higher taxes lowers consumers' net
income, making them more budget

Cost Of doing Business

When fiscal policy results in higher
interest rates, retailers pay more for
lines of credit.
Fiscal policy that increases the
employer portion of wage taxes for
Social Security and Medicare add to
the cost of doing business.

Investment Decision
Fiscal policy influences how much
risk a retailer takes.
Government introduction of tax
incentives, may give confident in
expanding business.
Lower corporate tax rates also free
up cash to reinvest in facilities and
merchandise selection.

Competitiveness
Uncertainty about the economy
keeps shoppers out of stores.
As long as customers delay major
purchases and reduce their number
of store visits, businesses must keep
prices low and cut costs, including
hiring, in order to remain
competitive.

Costs of Borrowing
A main component of fiscal policy is
the setting of funds rates.
Rates the government charges
banks for the money they use to
make residential and commercial
loans.
Typically, banks pass on increases
or decreases in rates to customers.

Unemployment
Overall levels of unemployment are
often a factor in government fiscal
decisions.
In some industries, companies base
decisions on future human resources
needs on current fiscal policy.

Fiscal Policy for Startup

in India
Startups can now enjoy 100 per
cent tax exemption for the first three
years on Profit.
Rs 500 crore for SC/ST and women
entrepreneurs, aimed at facilitating
growth for new businesses under the
Stand Up India scheme. .
Rs 2,500 crore annually for four
years to finance the startups.

References
The Economic Theory of Fiscal Policy,
Hansen. Bent, Psychology Press, 2003.
Fiscal Policy, Past and Present,
Auerbach, Alan J, Brookings Papers on
Economic Activity, No. 1, Spring 2003
The Rise of the Indian Economy:Fiscal,
Monetary and Other Policy Challenges,
Basu K, Rivista Italiana degli
Economisti

Thank you..!! _/\_