Fiscal Management Reaction Paper

The Influence of Fiscal Position to the Socio-Economic
Development of the Provinces in the Philippines
Reaction Paper:
Growth, poverty reduction, and social peace are all undermined when public expenditure
management and taxation are weak and when the fiscal deficit and public debt are not managed
successfully. And large-scale aid and debt relief cannot work without a good fiscal system. The
macroeconomic frameworks of many poor countries are improving, but fiscal policy’s full
potential will not be realized until good and accountable expenditure and taxation systems are
built. Good fiscal policy can raise economic growth through well-chosen public investments
provided that the spending is large enough. Growth itself increases the tax base generating the
potential for higher public spending on poverty reduction. Fiscal reform can be a tool for peace
when an unfair distribution of spending and taxation generates grievances that turn violent.
Overall, fiscal policy reveals more about the political priorities underpinning a country’s
development strategy than any other area of policymaking.
Public finance shapes the course of development. It affects aggregate resource use and
financing patterns and, together with monetary and exchange rate policies, influences the balance
of payments, the accumulation of foreign debt, and the rates of inflation, interest, and exchange.
Public spending, taxes, user charges, and borrowing also affect the behavior of producers and
consumers and influence the distribution of wealth and income in an economy. Balance of
payments crises and foreign debt problems are at least aggravated, and are often caused, by
imprudent fiscal policy. Their solution almost invariably involves some combination of cutting
public spending and raising additional revenue, thus freeing resources for exports and debt
service. Careless fiscal austerity can lead to prolonged recession, however, and can place a
disproportionately heavy burden on the poor. For this reason the structural aspects of public
finance policy how spending is allocated and revenue raised matter as much as the overall
macroeconomic balance.
In general, fiscal policy can be considered as one of the most important economic
policies of chosen economic-policy makers. The significance of fiscal policy is especially
perceived in connection with basic functions of this policy, such as allocation, stabilization and
redistribution. However, it is necessary to realize that fiscal policy must be also perceived as the
1
tool of economic growth. Fiscal policy is usually represented by the level and structure of
government spending on the one hand and by the level of individual taxes, resp. tax mix on the
other hand. It is also necessary to realize that the issue of the mutual interaction of fiscal policy
and economic growth belongs among important topics. Main reasons do not derive only from the
fact that fiscal policy has the potential to influence the long-term economic growth, but they also
lie in the further mentioned facts. Current, modern and globalized society is characteristic by the
necessity of the redistribution processes existence, which are usually represented by the level of
government spending. The existence of government spending is conditioned by the necessity of
its financing, where the taxes can be considered as one of the most important revenues of the
public budgets. However, there does not exist the unified opinion among the economists and
politicians about the way and range of taxation, or necessary amount of government spending
financing a wide spectrum of activities.
Analyses of the mentioned scientific works prove that it is impossible to make a definite
conclusion about the fiscal policy impact on economic growth. It is necessary to carry out an
empirical study of the fiscal policy instruments in order to unveil the interrelations between its
main components and the indicators of economic growth. This paper examines the role and
impact of fiscal policy levers on economic growth in advanced and emerging market economies
over the period.

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Fiscal Management Reaction Paper

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The Influence of Fiscal Position to the Socio-Economic

Development of the Provinces in the Philippines

development strategy than any other area of policymaking.

policies of chosen economic-policy makers. The significance of fiscal policy is especially

government spending. The existence of government spending is conditioned by the necessity of

financing a wide spectrum of activities.

over the period.

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