Globalization and the Need of Fiscal Reform in Developing Countries

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Without distinctive fiscal policies, a country can never be able to reap the benefits of globalization. Thus, Globalization and the need of Fiscal Reform in developing countries are considered a must for the countries that have implemented open market economy in the recent times. It facilitates the particular country to control and regulate the financial market. Opening up of the domestic market could be lethal as it can increase the pressure to the domestic companies while competing against the more financially powerful foreign companies. They can even fail to compete and eventually may break down which could lead to unemployment. And in this regard, the government needs to take an extra responsibility to support these companies. So, before taking the decision to open the domestic market, the government must ensure that public interest is protected. If any kind of financial risks arise, the government following open market economy can counter the problem if it has very high level of public spending. High level of public spending also increases the Gross Domestic Product.

Globalization and the need of fiscal reform in developing countries and closed economies

Developing countries that are following closed economies have social protection which is not carefully or expertly made. In these countries hardly any importance has been given to public spending. Instead, social protection has been given by controlling the price of the daily commodities, by escalating the job opportunities in the public sector units, by reducing the price utility, by offering of credit subsidy, and more.

But in the perspective of financial globalization, all these are truly vulnerable. Plenty of changes need to be made by the government of a growing country. And changing the years old orthodox system is definitely a Herculean task. But for better social protection, this fiscal reform is necessary. Globalization and the need of fiscal reform in developing countries require steps like offering compensation for unemployment, allowances to the families, offering pension to the retired professionals, and offering free mid day meals to the school children, etc. If these steps are followed, definitely public spending will be increased and as a result gross domestic product will also be enhanced and the pertaining country could enjoy the benefits of globalization. Statistics show that the public spending of the developed countries is much higher than the developing or under developed countries.

Globalization and the need of fiscal reform in developing countries and Taxation

In today’s taxation system, the personal tax and the value added tax (VAT) have an important role to play. But due to globalization, decrease in these two taxation systems has been noticed. Financial globalization and open market economy does not approve these taxes; instead taxes are imposed on considering the international trade which is a big setback for the developing countries.

Solution

To counter this problem of taxation, several methods have been applied. Sometimes, the developing countries introduce high tax on luxurious products that are imported from the foreign countries. Mobilization of the financial capital among the different countries also reduces the tax, while there are also some countries that have come up with the policy of dual income taxation.