In a developing economy, it should aim at solving the problem of both cyclical unemployment and disguised unemployment. 9 Since then, there has been growing interest in understanding the relationship between fiscal policy, growth, and poverty in these countries, particularly in low-income ones. While the former is of temporary nature, the latter has the snow-balling effect. This inelasticity, combined with political pressures for public spending, causes budget deficits which are covered by inflationary (deficit) financing (spending). Full employment. Fiscal policy deals with macroeconomic levers of power. The second section surveys optimal fiscal policy in developing countries, by considering the role of the intertemporal government budget, and sustainability and solvency. This book brings together some of this research. Generally following are the objectives of a fiscal policy in a developing economy: 1. fiscal policy, with time series or with cross-sectional methods, and their applicability to developing countries. Decisions on fiscal policy, especially if properly synchronised with monetary policy, can help smoothen business cycles, ensure adequate public investment and redistribute incomes. In contrast, in developing countries, fiscal policy is used to create an environment for rapid economic growth. The second section surveys optimal fiscal policy in developing countries, by considering the role of the intertemporal government budget, and sustainability and solvency. Mobilisationm of resources: Developing economies are characterized by low levels of The challenge in developing countries is to enhance the redistributive role of fiscal policy, while also promoting growth and maintaining fiscal sustainability. 2. This concludes budgets, debts, deficits and state spending. Fiscal policy plays a vital role in generating employment opportunities in the developing countries. In fact, tax systems in such countries are often inelastic with respect to income. The various aspects of this are: 1. The four main components of fiscal policy are (i) expenditure, budget reform A key factor in explaining this difference is the greater redistributive impact of fiscal policy in high-income countries. Monetary and fiscal policies are closely related, and both have profound impacts on economic development throughout the world. It also reviews the fuzzy debate on “fiscal space” and “macroeconomic space” - and the usefulness (or lack thereof) of these terms for policy … In 1989, for example, IMF staff compiled a volume on fiscal policy, stabilization, and growth in developing countries. Decisions on fiscal policy, especially if properly synchronised with monetary policy, The role of fiscal policy in developed economies is to maintain full employment and tabilize growth. 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