Please enable JavaScript.
Coggle requires JavaScript to display documents.
FISCAL POLICY (FP IN SINGAPORE (Multiplier
Small but not insignificant
…
FISCAL POLICY
Government Expenditure
- Operating Expenditure:
- day-to-day operations and regular activities of govt.
- include wage of public service officers, other operating expenditure
- Development Expenditure:
- Expenses on development projects that represent longer-term investment
- e.g. building roads, expressways, etc
(SG spends mostly on Defence, Education, Health and Home Affairs)
-
Non Discretionary
Automatic Stabilisers
Features of G and T that change automatically to dampen fluctuations in economic activity
- e.g. PIT, unemployment benefits
In recession
- AD falls, multiple fall in NY
- PIT system: proportion to be paid in tax decreases
- More unemployment benefits paid out
- Falling tax payment + Increasing unN benefits = cushions fall in disposable Y and fall in C
- Cushion fall in NY during recession
In economic expansion
- AD rise, leads to multiple rise in NY
- In PIT system: as total Y increase, proportion to be paid in tax also increases
- Less people unemployed = less unemployment benefits
- Rising tax payment + Falling unN benefits = dampen growth in disposable income and growth in C
- relieve inflationary pressures
Limitations
- Reactive measures
- Reduce severity of fluctuation but does not eliminate them completely
-
FP IN SINGAPORE
Multiplier
- Small but not insignificant
- Targeted transfers at lower Y group have a higher multiplier
Short Implementation Lags
- Administrative tools enable govt to swiftly implement FP without cumbersome legislative processes
- e.g. efficient tax and CPF system enable govt to distribute transfers quickly
Limited Crowding Out Effect
- SG has accumulated budget surpluses in years of economic growth
- Can afford to run budget deficits during economic downtown
- G can be financed by accumulated budget surpluses rather than borrowing
Limited Scope
- Corp. tax rate v low, not much room to reduce further in a rec
- bc will lower tax revenue, which affects budget position
- Has implications on other obj of govt
- Limited scope; there is a need for other policies eg ERP and trade policies