Globalization and Fiscal Policy

Overall Rating: star ratingstar ratingstar ratingstar ratingstar rating[4/5]Total Votes [ 1 ]  
Rate this page:
To stabilize capital mobility output and exchange rate structure, the combination of globalization and fiscal policy needs to be worked out well. Fiscal policy is way different from the traditional monetary scheme. There are very few countries that have incorporated a flexible exchange rate system in their economic sector.

However, before analyzing an inter-relation between globalization and fiscal policy, it is important to know about them separately.

About Globalization and its impact

Governments of different countries worked out on the possibility of globalization to ensure liberalization in trade and capital markets along with privatization and deregulation of financial activities. However, an impact of globalization could only be realized with the development of information and communication technologies that transformed the global economic landscape.

Most of the nations achieved higher rate of prosperity during 1990s. It was the time when many enterprises and countries drew advantage of globalization and the technologies. Globalization helped in creating employment and enhancing productivity.

However, it did not come without its share of few disadvantages as well. These include:

  • Economic crisis in one nation leading to financial disruptions in other countries
  • Increased chances of civil wars
  • Environment pollution
  • Violent reactions to preserving cultural integrity

About Fiscal Policy and its objectives

Fiscal policy helps in deciding public revenue and public expenditure. In present times, every nation has become attentive to devising an effective fiscal policy to ward off troubles that are being faced due to economic uncertainties. It has gained immense importance in recent times. The essential components of fiscal policy are taxes, public expenditure and public debts.

Arther Simithies, a reputed economist and budget expert, holds that fiscal policy enables government to make use of its expenses and revenue plans to create positive effects and drive away negative impacts on the national income, employment and production.

With the help of fiscal policy, the government of any nation desires to achieve following goals:

  • Stability in price level
  • Enhanced consumption rates
  • Increased employment
  • Equitable income distribution
  • Growth in capital and resources
  • Level of inflation

Relation between Globalization and Fiscal Policy

Fiscal policy is by large affected by globalization. It helps in determining trade and capital inflows. A considerable difference can be noticed between the income of a labor class and proficient workers. This kind of gap poses two potent challenges before the fiscal policy. First challenge is social protection in the long-term policies and second includes public investment in academic field in the long-term plans. Developing countries need public investment in order to attract foreign direct investment (FDIs) and to get an access to global market.

Last Updated on 5/18/2011