MONEY AND BANKING PART 15
TOOLS OF FISCAL POLICY There are 5 tools of fiscal policy 1. Budget 2. Taxation 4. 5. Public expenditure Public work Public debt
PUBLIC WORK According to Keynes, this is the most effective tool of fiscal policy. This is of 2 types Public work: Expenditure on roads, rail tracks, schools, parks, buildings, airports, post offices hospitals, irrigation canals etc. 2. Transfer Payment: Payment like interest on public debt, subsidy, pension, relief payment, unemployment, insurance and social security benefits etc
PUBLIC WORK DURING DEPRESSION Public work is said to be an important anti depression device due to the following reasons: It helps to absorb unemployed labour. It increases the purchasing power of the people and thus, helps to raise the consumer demand It helps to create socially and economically useful assets like power, flood control, irrigation, schools, roads, hospitals etc It helps for thr growth of industries that are stricken with depression
5. It helps to maintain the social and moral sanctity of labour by providing them meaningful jobs. 6. The off setting effect upon private investment because these are started at a time when private investment is not forthcoming. public works do not have an
LIMITATIONS DIFFICULT FORECASTING : The implementation of public work programme depends upon the accuracy of prediction of boom or depression. It is often inaccurate and thus, ineffective. 2. TIMING OF PUBLIC WORK : Due to lack of accurate forecasting, proper timing is neither feasible nor possible. So, the effiency of public work is again under question
LIMITATIONS 3. DELAY IN STARTING : The implementation of public work programme depends upon the many factors such as finances and engineering. It is not possible to start in quickly as it is a long run programme. 4. LACK OF RESOURCES : Any public work programme requires a large amount of resouces. But due to the scarcity of resources , such programmes cannot b run smoothly 5. LIMITED EMPLOYMENT : All the types of unemployed labours cannot be given employment.Only the unskilled and semi skilled can seek iobs here
LIMITATIONS 6. MISALLOCATION OF RESOURCES : The public work programme are concentrated in certain areas. the immobility of factors of production is another bottleneck 7. BURDEN OF PUBLIC DEBT: The programmes are initiated through borrowing from the public. This pushes the economy into further burden of repayment of principle and payment of interest. 8.Effect on Private Enterprise: The programmes by public agencies compete with private agencies, In this case, the latter is driven out of business.
LIMITATIONS 9. COST PRICE DIFFERENCES : Public spending is usually concentrated in heavy industries. During the period of boom, wages and prices in construction industries have a strong upward tendency while in recession or depression, prices move downward, wages and costs remain sticky relatively. This leads to instability in the economy 10. CONTROL OVER PUBLIC WORK : The efficiency of public work depends on the controlling authority. Since, it is owned by the government, it often leads to delay.
LIMITATIONS 11. POLITICAL CONSIDERATIONS : The public works are started in countries not due to economic or social concerns but due to the political pressure. Hence, the economic utility of such works remains very limited.