The Role of Fiscal Policy in Asian Economic Development

In developed countries, fiscal policy refers to the measures taken by governments to stabilize their economies at high levels of employment and output through taxation and government expenditures. In discussing fiscal policy, a distinction is therefore made between measures that affect government spending and those that bear on government revenues. When economic activity is at a low level, the expansionary effect can be achieved through increased expenditure on construction of infrastructure such as roads, buildings and irrigation systems. A similar effect could also be achieved through the revenue side of the budget by reducing taxes on income and consumption or by providing fiscal incentives for increasing investment in the private sector. The process could be reversed, however, when the economic activity is at a high level by reducing government spending and/or increasing taxes…