2 Financial system and fiscal policy
Finance is an economic instrument for the distribution and redistribution of gross domestic product, a tool for controlling the formation and use of funds. The set of financial relations within the national economy forms the financial system of the state. Its structure is shown in Fig. 4.
The important role played by the state in the field of socio-economic development leads to the need to centralize a significant part of financial resources at its disposal. The forms of their use are budgetary and extra-budgetary funds, government credit, insurance funds and the stock market. The most important principle of building public finances is the principle of fiscal federalism, in which the functions between the federal, subfederal and local levels of the financial system are clearly delineated. National finances are closely related to corporate finances. The state policy on the organization and use of finance is called financial or fiscal policy.
Fiscal policy is a set of government measures in the field of taxation and regulation of the structure of government spending (fiscal policy) and in the field of budget regulation (budget policy).
The fiscal policy of the state can be carried out based on the use of various methods and, accordingly, take different forms. The main types of fiscal policy of modern states are shown in Figure 5.
The set of taxes applied in a country is called the tax system. It is based on state legislative acts that establish the elements of tax (subject, object, source and tax rate). There are marginal, average, zero and preferential tax rates.
The marginal tax rate is the increase in taxes paid divided by the increase in income.
The average tax rate is the total tax divided by the amount of taxable income.
Based on the relationship between the average tax rate and income, taxes are divided into progressive (the rate increases as income increases), regressive (the rate decreases as income increases) and proportional (the rate remains unchanged, regardless of income).
The question of whether a tax should be high or low is the subject of constant debate among economists and politicians. Followers of Keynes believe that high tax levels reduce aggregate demand. This means prices are falling and inflation is dying down. Proponents of “supply-side economics” argue the opposite: high taxes increase costs for businesses, which are passed on to consumers in the form of higher prices and cause inflation. In addition, A. Laffer discovered a connection between tax rates and tax revenues, the graphical representation of which was called the Laffer curve. Its economic meaning is as follows: when the income tax rate is above a certain level, business activity sharply decreases, because entrepreneurial activity becomes unprofitable. And lower tax rates create incentives to work, save, invest, take business risks, and expand national production and income. The result is a broader tax base, which can keep tax revenues high even though tax rates are lower (Figure 6).
Figure 6. Laffer curve
The scope of application of budgetary policy is the state budget.
The state budget is a plan for government revenues and expenditures. In general, the structure of the state budget is as follows (see table 1):
Table 1
State budget structure
The most important task of fiscal policy is the need to balance the state budget and manage the budget deficit.
Budget deficit is the excess of budget expenditures over revenues. The main reasons for the state budget deficit are a decrease in budget revenues, an increase in government spending, as well as inconsistent financial and economic policies of the state.
In economic theory, there are several types of budget deficits.
· The structural deficit represents the difference between current government expenditures and the revenues that could flow into the budget under conditions of full employment under the existing tax system.
· The cyclical deficit is defined as the difference between the actual and structural deficit.
· Actual deficit – the total deficit of the state budget.
· The primary deficit is equal to the difference between the actual deficit and payments on the national debt.
An increase in the budget deficit leads to the emergence and growth of public debt. Public debt is the sum of budget deficits accumulated over a certain period of time minus the positive budget balances existing at the same time. The structure of public debt is shown in Figure 7.
The economic consequences of public debt can be boiled down to several points:
· a significant reduction in consumption opportunities for the population of a given country;
· crowding out private capital, which may limit further economic growth;
· increasing taxes to pay for the growing public debt acts as a disincentive to economic activity;
· redistribution of income in favor of government bond holders.
A direct result of the growth of public debt is the organization of a system for managing this debt.
3 Monetary system and monetary policy
Monetary policy in its most general form can be defined as an action carried out in the field of money circulation and credit by special bodies. The structure of the monetary system is shown in Figure 8.
The modern monetary system is characterized by the distribution of functions between different institutions. In particular, issuing functions are performed by central banks, while lending functions are mainly performed by commercial banks. SKFIs have recently taken a leading position in the field of investment activities and the accumulation of monetary capital, competing with the banking sector.
Monetary policy is implemented jointly by the government and the central bank. At the same time, the main subject of monetary policy is the central bank, which builds its activities in two important areas. The first ensures the normal operation of the country’s currency system as a whole, since a stable national currency is an essential element of the market infrastructure. The second direction is influence on the lending activities of private (commercial) banks, and is structured in such a way that the interests of the state are properly ensured. The Central Bank, therefore, is called upon, on the one hand, to manage, adjust, regulate all monetary flows within the country and on the world stage, on the other hand, on the basis of monetary instruments and flows, regulate macro-proportions in the economy and partly throughout society based on its needs and place in the world economy. To implement the state’s monetary policy, the central bank uses an appropriate set of instruments (see Table 2).
table 2
Monetary Policy Institutions
| Policy instruments | general characteristics |
| Money issue | Growth of cash in circulation |
| Reserve policy | Establishment by the Central Bank of standards for the mandatory transfer to reserves of a portion of funds received in the deposit accounts of commercial banks (and other financial institutions). |
| Monetary policy | Exerting a direct impact on the amount of money supply in the country. By selling currency, the Central Bank reduces the amount of money; by buying, it increases |
| Open Market Policy | Sale and purchase of securities by securities |
| Accounting policy | Establishment by the Central Bank of a discount rate or refinancing rate for providing a loan to a commercial bank |
When implementing monetary policy, it is possible to use instruments of both direct (lending limits, interest rate regulation) and indirect regulation (changes in the required reserve ratio, changes in the refinancing rate, open market operations). The effectiveness of using indirect regulatory instruments is closely related to the degree of development of the money market. As world practice and Russian experience of reform show, in transition economies, especially in the first stages of transformation, both direct and indirect tools are used with the gradual displacement of the former by the latter.
Monetary policy, like fiscal policy, has its pros and cons. Its strengths include speed and flexibility, less dependence on political pressure compared to fiscal policy, and greater political conservatism. At the same time, increasing the importance of monetary and financial methods of state influence on the modern economy does not exhaust the problem of market regulation. The population evaluates the activities of the state and its bodies primarily by the dynamics of economic growth parameters and the dynamics of the quality of life. This requires further development of the social sphere.
List of used literature
1. Borisov E.F., Volkov F.I.. Fundamentals of economic theory. "Graduate School". M., 2003
2. Rokhlin E. Fundamentals of economic theory. Microeconomic theory of input markets. M. "Science", 2006
3. Agapova T.A., Seregina S.F. Macroeconomics. Textbook edited by A.V. Sidorovich. M.: IPPC MSU, 2006.
4. Mironov V.A. Economic theory. M., 2004
5. Sachs J.S., Larren F.B. Macroeconomics. Global approach. Per. from English M. Case. 2006.
6. Layard R. Macroeconomics. Course of lectures for Russian readers. M. 2004.
Eliminate. Therefore, expansion, and not economic efficiency or meeting the needs of society, is the main motive for the activities of government agencies./4/ Factors influencing the economic policy of the state using the example of 2003. The economic development of the country in 2003 is of interest not only in itself, but also from the point of view of the results of government activities, ...
Equilibrium is that this concept includes fluctuations in economic conditions caused by imperfect information, errors in the forecasts of economic entities or instability of the state’s economic policy. In this case, almost any state of the economy, in which, taking into account the permissible error, the expectations of economic entities are justified, can be considered...
About creating conditions for the flourishing of entrepreneurship, but this is a completely different matter. Despite, however, objective prerequisites that exclude the very possibility of developing and implementing state regional economic policy in the above understanding, this issue has been initiated for consideration at the highest state level for several years. We are talking, in particular, about...
Resources that are typically allocated to the most productive sectors of the economy. The state as a whole will promote the allocation of resources in industries that are competitive in international markets. Driven by new trade opportunities and competition from abroad, economic activity will increase. Manufacturing will have greater access to imported resources from...
Taxes and expenses states are the main instruments of fiscal policy. Fiscal policy- is a system of regulating the economy through changes in government expenses and taxes. The goals of fiscal policy are: smoothing out economic cycle fluctuations; stabilization of economic growth rates; achieving a high level of employment and moderate inflation rates. Distinguish two types of fiscal politicians - discretionary or active, And automatic or passive. Discretionary policy based on government manipulation of public spending and taxes. An increase in government spending and (or) a reduction in taxes corresponds to expansionist (stimulating) fiscal policy, reducing government spending and (or) increasing taxes - contractive (restraining) fiscal policy.
Automatic is a passive fiscal a policy in which necessary changes in levels of government spending and taxes are introduced as if automatically. Its tools are built-in stabilizers. This, in particular, is a progressive taxation scale. During economic recovery due to automatic fiscal policy available income of the population and unallocated I firms' profits grow more slowly than income tax, and this restrains the growth of effective demand. During a recession, such taxation slows the decline in aggregate spending.
Non-tax income - income, transferred to the budget, not related to taxes. In accordance with the budget classification of the Russian Federation, non-tax revenues include:
· income from property in state and municipal ownership, or from the activities of state and municipal organizations
· income from the sale of land and intangible assets
receipt of capital transfers from non-state sources
· administrative fees and charges
· penalties, compensation for damages
Fiscal policy plays an important role in the stabilization measures of the state, however, both automatic and discretionary cannot eliminate cyclical fluctuations. Both can limit the scope and depth of fluctuations, significantly influence the dynamics of social production and employment, and reduce inflation rates.
The second aspect of financial policy is budgetary policy, or budgeting. It is a regulatory process to achieve budgetary equilibrium. When expenses and income are equal, there is a budget balance. In modern conditions, the budgets of most Western countries are running deficits. Unambiguous opinion about Economists have not worked out the impact of the state budget deficit. Moreover, representatives of Keynesianism argue that a moderate budget deficit is a good thing because it makes it possible to increase aggregate demand through deficit financing of government spending.
Therefore, when developing budget policy, it is necessary to determine what results in a deficit. Cyclic deficit is the result cyclical decline production and is a negative phenomenon for the economy, since indicates underutilization of production facilities possibilities of society. Structural deficit arising as a result of fiscal policy deliberately pursued by the government in order to prevent production declines, can play a role positive role in stabilizing the economy.
The problem of fiscal policy is the choice of method for covering the budget deficit. The main methods of covering the budget deficit are the issue of credit money and the issuance of government loans. The issue of credit money is undesirable, since it increases inflation, worsens the state of money circulation, which increases economic instability.
Under the emission is understood as the release of money into circulation, which leads to a general increase in money supply, in circulation. There is emission of non-cash and cash money (the latter is called the issue of money into circulation). Concepts " issue of money" and "issue of money" are not equivalent. The release of money into circulation occurs constantly. Non-cash money is issued when commercial banks provide loans to their customers. Cash is released into circulation when banks, in the process of carrying out cash transactions, issue them to customers from their operating cash desks. However, at the same time, clients repay bank loans and hand over cash to bank operating cash desks. At the same time, the amount of money in circulation may not increase.
A state loan is a loan in which the borrower is the Russian Federation, a subject of the Russian Federation, and the lender is a citizen or legal entity. A government loan agreement is concluded through the acquisition by the lender of issued government bonds or other government securities certifying the lender's right to receive from the borrower the funds lent to him or, depending on the terms of the loan, other property, established interest or other property rights within the time limits provided for by the terms of issuing the loan into circulation.
P The preferred option to cover the deficit is to issue government loans.
An element of fiscal policy is public debt management. Public debt is the amount of outstanding government budget deficits accumulated over the entire existence of the country. Control public debt is important due to its negative impact on the economy. Expenses are increasing for its maintenance, which in turn causes an increase in taxes and a decrease in business activity. For example, the total amount of expenditures of the Russian federal budget on servicing the public debt in 1995 amounted to 25% of budget expenditures.
Due to the fact that budget deficits, as shown above, create serious problems for the economy, the governments of most Western countries have now switched from a policy of budget financing to cutting government spending and changing tax policies. Transfer from income tax to consumption taxes, from proportional to progressive rates stimulates increase in savings, savings going towards investment. The reduction in government spending is carried out mainly through economic, and above all social, allocations. Proportional or flat tax. Taxes that are levied at a flat rate for any amount of income. The amount of payment is proportional to the amount of income. Perhaps a more effective way to force the rich to pay taxes would be to introduce taxes on expenses. Note: SUBSIDY (lat. subsidium - assistance - funds provided to the budget of another level of the budget system of the Russian Federation, to an individual or legal entity on the basis of shared financing of targeted expenses. One of the means (methods) budget regulation.
SUBSIDY (lat. subsidium - help. support) is one of the methods of budget regulation: an amount allocated to finance certain activities and presupposing the share participation of lower budgets in this. S. began to be used to finance those programs and activities which were disadvantageous to private capital, as well as for maintaining private enterprise in general, which is one of the forms of government influence on economic development. A distinction is made between direct and indirect investment. With the help of direct investment, the state stimulates capital investment in industries. which are not profitable enough, but are necessary for the country’s economy as a whole, as well as fundamental scientific research, design work, retraining of personnel, etc. In conditions of chronic deficit of local budgets, subsidies become an important method of generating their income. After the Second World War, external cooperation between the leading capitalist states and other Western European countries was greatly developed under the Marshall Plan. State subsidies for production are carried out, as a rule, in indirect forms by providing tax exemptions and benefits, establishing fixed and periodically revised prices for various products, essential goods and utilities, introducing free medical care, education, etc.
Progressive taxation: pros and cons
How effective has a flat tax been and is it time to replace it with a progressive tax? The participants of the round table on the topic: “Is it necessary to introduce progressive taxation in Russia?”, held at RIA Novosti on April 15, 2010, reflected on this. What are the results of this discussion?
In February, a bill introducing a progressive scale of personal income tax in Russia was submitted to the State Duma. The current income tax in Russia with a flat 13 percent rate was introduced in 2001. Then-president Vladimir Putin promised that the tax would last in this form for ten years. How effective a flat-scale tax turned out to be and whether it’s time to replace it with a progressive tax - participants in a round table on the topic: “Is it necessary to introduce progressive taxation in Russia?”, held at RIA Novosti on April 15, 2010, reflected on this.
Today in Russia, 1% of the population receives about 40% of all income. By comparison, in the United States the share of the top 5% of households in national income is only 21%. The richest 1% of people in the US account for 8% of national income. Thus, in Russia the degree of inequality is 5-10 times higher than in the United States.
August 2011. A bill was submitted to the Duma.
According to the bill, the tax rate will depend on the annual level of income of the taxpayer:
Up to 120,000 rub. - rate 10%;
From 120,001 to 500,000 rubles - 12,000 rubles + 15% on the amount exceeding 120,000 rubles;
From 500,001 to 1,100,000 rubles. - 69,000 rub. + 25% of the amount exceeding RUB 500,000;
From 1,100,001 to 2,900,000 rubles. - 219,000 rub. + 35% from an amount exceeding RUB 1,100,000;
Over 2,900,000 rub. - 849,000 rub. + 45% from the amount exceeding RUB 2,900,000.
Lawmakers propose to exempt citizens whose income is below the subsistence level in force in the region from paying personal income tax.
As Amitel news agency already reported, last year two bills on a progressive scale of personal income tax were submitted to the State Duma, but deputies did not pass them.”
2.Financing of the social sphere from the Consolidated Budget
The consolidated budget of the Russian Federation consists of the federal budget; budgets of 89 constituent entities of the Russian Federation; local budgets. Extra-budgetary social insurance social funds play a special place in the financing of the social sphere. .
The Budget Code of the Russian Federation established a three-level budget system, separately placing categories government debt as well as finance state off-budget social insurance funds.
Federal budget Russia is developed on the basis of an analysis of economic development. The main declared priorities of this budget are reducing the tax burden and increasing social budget direction. However, an analysis of the structure of federal expenditures budget proves that, compared to other items, social priority is not sufficiently expressed. Thus, government expenditures law enforcement, national defense from the federal budget make up on average more than a third of all expenses, more a third goes to maintenance and partial repayment state external debt, and for all other purposes, including social policy, assistance to budgets of other levels, etc. is sent just the remaining third.
Budgets of a constituent entity of the Russian Federation(regional budget) is a form education and expenditure of funds intended to provide tasks and functions, classified as subjects of jurisdiction of the constituent entity of the Russian Federation. The budget of a subject of the Russian Federation and the set of budgets of municipalities located on its territory constitute the consolidated budget of a subject of the Russian Federation.
Local finance. State finance is supplemented by the category of municipal finance, the development of which, along with the Budget Code of the Russian Federation, is subject to the legislation on local self-government and its financial foundations. The Code establishes the basic budget proportion between the federal and subfederal budgets in terms of income as 50:50.
Development of processes of fiscal federalism, redistribution of power between the Center and the regions, leads to the fact that an increasingly important role in the financing of social programs is played by budgets of the constituent entities of the Russian Federation. They currently finance everything related to the livelihoods of the population in the territory. Currently, these are survival budgets for vulnerable segments of the population. Territorial budgets have a much greater social focus t than the federal budget. They finance on average about 70% of the costs of social and cultural events.
Financial policy- this is a set of government measures to use financial relations for the state to perform its functions. The principles of organizing state finances are fundamental, objective foundations for their construction in the conditions of a market commodity-money economy. In a market economy, the organization of finance is determined by economic laws. However, in the real life of the state, the organization of financial relations may differ from the relations that are dictated by laws. In practice, the objective organization of finance is mediated by the implementation of state financial policy.
All branches of government are one way or another involved in the implementation of the financial policy of the Russian Federation. The success of financial policy largely determines the stability of the state and the performance of its state functions.
Financial policy is independent activities of the state. It contains its goals, objects, objectives, content, as well as methods and forms of regulation. There are four main components of the state's financial policy: tax policy, budget policy, international finance policy, and monetary policy.
The main goal of the state's financial policy is the most efficient use of financial resources necessary to meet the urgent needs of society's development. Accordingly, the main purpose of financial policy is to create favorable conditions for the activation of entrepreneurial activity, as well as their concentration on the main directions of economic and social development. The main goal of the state's financial policy should be the same for all levels of government (federal, regional and local), for all subjects. Such a goal can only be the common interests of the entire population - increasing the well-being of each person.
Under certain conditions and at different stages of economic development, as well as in certain regions, a situation may arise when the goal of financial policy will temporarily be to maintain the already achieved real level of income. The goal of the financial policy of the Russian state (and the subject of the Federation in particular) should be to increase or maintain the level of real income per capita and, on this basis, to ensure social standards for the standard of living in the country, including at the level of each region. Currently, the main goals of public financial policy are to reduce inflation rates, smooth out jumps in economic cycles, increase the volume and efficiency of use of financial resources, improve and structurally restructure the economy, and achieve a higher standard of living for the population through the development of industries and agriculture. The main objectives of financial policy are: creation of an effective system of operational financial management; providing conditions for the formation of the maximum possible financial resources; establishing the optimal distribution and use of financial resources; development and subsequent development of financial mechanism instruments taking into account adjustments to the strategy.
Leading economists distinguish three types of financial government policy: 1) stabilization; 2) economic growth; 3) policy of restricting business activity. Stabilization policy is a fiscal policy measure used by the government. Economic growth policy is a system of financial measures aimed at increasing the actual volume of the gross national product and increasing the level of employment. It includes an increase in government spending and a reduction in the tax burden. Business Restriction Policy is aimed at reducing the real volume of GDP compared to its potential level and is used by the government during periods of recovery or boom in order to avoid a crisis of overproduction and inflation that arises along with excess demand. A contractionary policy implies: reducing government spending and increasing taxes. Positive performance of financial policy is a high degree of achievement of set goals and objectives. The higher the effectiveness of financial policy, the more it takes into account the needs of social development, the interests of all layers and groups of society, specific historical conditions and characteristics of life. To the same extent, the success of financial policy also depends on the high-quality development of a mechanism for coordinating and realizing the interests of various sectors of society and the objective capabilities available to the state. In the budgetary sphere, this is expressed primarily in income received, in changes in priorities, volumes and directions of financing of economic complexes and sectors of the economy. In the monetary sphere, this may be an increase or decrease in balances on current accounts, a change in the balances of loan debt on short-term and long-term bank loans, a change in the amount of money servicing the circulation of consumer goods, etc.
General financial management in public financial policy is carried out by the highest representative legislative body, the Federal Assembly of the Russian Federation. Responsibilities are distributed between its two chambers, the State Duma and the Federal Assembly. These bodies review and approve the federal budget, and also monitor its implementation. The main structure of financial control is the Accounts Chamber. She monitors the execution of expert-analytical, control-auditing and information functions. The leading role in financial management of the Russian Federation is played by the Central Bank of the Russian Federation and the Ministry of Finance.
Contents of financial policy states multilaterally. Firstly, taking into account existing economic laws and a comprehensive analysis of economic activity, further prospects for the development of economic entities at the micro- and macro-level, as well as the needs of the population, concepts for the development of finance are being developed on a scientific basis. Secondly, taking into account the international environment, the current economic policy, strategic and tactical steps to achieve set goals, the main directions for using finances in different periods are determined and the possible growth of financial resources is determined. Thirdly, practical actions are carried out to achieve the goals developed at each level of management. For the successful implementation of financial policy, it is used financial mechanism as a system of purposeful actions using financial relations (finance). The structure of the financial mechanism is quite complex. The financial mechanism includes various elements corresponding to one or another type of financial relationship. It is the multiplicity of financial relationships that predetermines the use of a large number of types, forms and methods of their organization (elements of the financial mechanism).
There are two types of financial mechanism - directive and regulatory. Directive type involves a detailed study of the entire system of organizing financial relations in which the state participates, including taxes, state credit, budget expenditures, budget financing, organization of the budget structure and budget process, financial planning. This type declares the obligatory nature of established forms, types and methods of action for all subjects of financial relations. In some cases, the directive financial mechanism also extends to financial relations in which the state participates indirectly, but which occupy a significant place in the implementation of all financial policies.
Regulating type The financial mechanism provides for the establishment of only basic rules for the use of financial resources remaining after payment of mandatory payments. Each enterprise independently develops the types and forms of funds, as well as directions for their use.
One of the main instruments of government influence on the economy is fiscal policy, which is a union tax and budget policy. This policy is implemented through taxation and government spending. Since the implementation of government spending represents the use of funds from the state budget, and taxes, in turn, are the main sources of its replenishment, we can conclude that pursuing fiscal policy means manipulating the state budget. Fiscal policy includes only those manipulations that are in no way related to changes in the amount of money in circulation. In the economic literature, many authors distinguish two types of fiscal policy: discretionary(active) and automatic(passive). At the core discretionary Fiscal policy is a way for the government to manipulate public spending and taxes. If government spending increases and taxes decrease, expansionary fiscal policy arises. If government spending is reduced and taxes are increased, then such a policy is called contractual, or contractionary, fiscal policy. Under automatic fiscal policy refers to the passivity of fiscal policy. With this type of policy, all necessary changes in the structure of levels of government spending and taxes are introduced automatically. Instruments of passive fiscal policy are built-in stabilizers, for example, a progressive tax scale. That is, during the period of economic growth, under such a policy, the disposable income of the population grows more slowly and the retained earnings of firms only slightly increases, and this, in turn, constrains the efficiency of demand. During an economic downturn, this type of taxation significantly slows down the reduction in aggregate spending. Let's consider each of the components of fiscal policy: tax and budget policies.
Tax policy- this is part of the state’s economic policy, aimed at creating a tax system that ensures economic growth, promotes the harmonization of the economic interests of both the state as a whole and taxpayers, while taking into account the socio-economic policy in the country. According to a number of economists, the main goal of modern tax policy is to form a tax system that will not become burdensome for business entities, both in terms of the withdrawal of income in the form of tax payments, and in relation to the procedure for calculating, paying taxes, streamlining tax reporting and tax audits . Such checks should be conducive to an active investment process and business development. According to another group of economists, the main goal of the state’s tax policy is to create a tax system that could constantly stimulate the accumulation and proper use of the country’s national wealth, as well as help regulate the interests of the economy and society, directing them in one direction, which will ensure social and economic progress of the entire society. It is also believed that tax policy pursues the optimization of centralized funds.
Thus, the main goal of tax policy is to form a tax system that can provide income to the country’s budget, not become burdensome for business entities, and also create conditions for the social and economic progress of the entire country.
Based on this target setting, it is easy to see that the state, when implementing tax policy, is faced with very contradictory issues. In fact, he has to solve two key and at the same time mutually exclusive tasks: to ensure a sufficient increase in tax revenues to budgets of all levels and to significantly reduce the amount of taxes paid by taxpayers.
Any state has its own tax system, which is based on state legislation that establishes the elements of tax. One of these elements is the tax rate. The marginal tax rate is the increase in taxes paid divided by the increase in income. The average tax rate is the total tax divided by the amount of taxable income. Based on the relationship between the average tax rate and income, taxes are divided into progressive, when the rate increases as income increases, regressive, when the rate decreases as income increases, and proportional, when the rate does not change, despite the size of income. It is important to note that on the issue of tax rates, a group of American specialists led by Professor A. Laffer studied the dependence of the amount of tax revenues to the budget on income tax rates. The economic meaning of the Laffer curve is that when the income tax rate is above a certain level, business activity quickly and greatly decreases, since entrepreneurial activity loses its purpose and becomes unprofitable. Lower tax rates, in turn, create incentives to work, promote savings, investment, business risk taking, and increased national production and income. As a result, the tax base is expanded, which can maintain tax revenues at a high level even if tax rates are lower.
Fiscal policy as part of the state's financial policy includes: the policy of mobilizing revenues into budgets of all levels; policy in the field of interbudgetary relations; policy in the field of budget expenditures. Budget policy is government activities related to the management of budget revenues, as well as the budget deficit. State budget policy, like tax policy, has its own specific objectives. The following tasks of budget policy are distinguished:
- carrying out budget reform, as a result of which there should be a transition from managing budget costs to managing results by increasing the share of responsibility, increasing the independence of participants in the budget process;
- determination of principles for establishing the size and direction of budget subsidies;
- ensuring the need to balance the state budget, as well as managing the budget deficit;
- improvement of budget legislation;
- development of measures to stimulate the interest of territories in the development of their economic base;
- carrying out the restructuring of public debt;
- reducing the dependence of the federal budget on foreign economic conditions;
- implementing a transition from estimated financing of budgetary institutions and the direct provision of a significant part of budgetary services to the principle of payment in accordance with the results that society receives;
- reforming budget accounting, during which it is planned to change the Budget classification of the Russian Federation in accordance with international standards, taking into account the functions performed by state authorities and local governments;
- improving medium-term budget planning, which should become long-term;
- implementation and development of stable and reliable medium-term financial forecasts for both economic development and a long-term financial plan.
The state budget - This is the government's revenue and expenditure plan. As for the economic essence of the state budget, it represents the monetary relations that arise between the state and individuals and legal entities on the issue of redistribution of national income in connection with education and the use of budget funds. If we consider the state budget as a financial plan, then the state budget consists of income and expenses and provides the authorities with the economic opportunity to exercise their powers. The priority task of fiscal policy is to maintain a balanced state budget, as well as manage the budget deficit. Budget deficit - This is the excess of the expenditure side of the state budget over its revenue side. The main reason for the budget deficit is the lack of a consistent financial and economic policy of the state. Constantly growing and increasing deficits lead to government debt, which grows over time if the deficit is not covered. It is necessary to manage public debt, as it has a negative impact on economic development.
External public debt should be understood as debt to foreign states, individuals and organizations. Such debt places a huge burden on the country, as it has to give up certain valuable goods in return, provide specific services in order to be able to pay interest and repay its debt. Domestic debt mainly involves the redistribution of income among the population only within the country. According to a number of authors, public debt is the sum of budget deficits accumulated over a specific period of time, minus the positive budget balances available at that time.
Lecture 11. Financial system and fiscal policy. (4 hours)
1. Financial system and its structure.
2. The state budget and its main articles.
3. The essence and reasons for taxation. Types of taxes.
4. Budget deficit and its causes.
5. Public debt and its consequences.
6. Contractionary and expansionary fiscal policy.
1. Financial system and its structure.
Economic relations arising in the process of taxation and government spending are called financial relations, or finance.
These relations, on the one hand, ensure the existence of the state itself and its institutions, and on the other hand, they are used by the state for macroeconomic regulation of the national economy.
Financial relations are carried out through the relevant institutions (Ministry of Finance, Ministry of Taxes and Duties).
The totality of all financial relations of society and the institutions that implement them is the country's financial system.
Main task public finance consists of providing the state with the funds it needs to perform economic functions. They include the following units: state budget, off-budget funds, state credit
Rice. Structure of the financial system
2. The state budget and its main articles.
The leading link in the financial system is the state budget- a centralized fund of monetary resources at the disposal of the government and used to carry out socio-economic functions.
Rice. Functional structure of consolidated budget expenditures in 2007, as a percentage of the total
For an excellent student! The bulk of budget expenditures in the section “Real sector of the economy” accounted for expenditures in subsections: “Agriculture, fishery activities” - 43.5% (in 2006 - 47.3%) of all expenditures on the national economy, “Roads” - 22% (24.4% in 2006), “Industry, energy, construction and architecture” - 19.1% (instead of 14% in 2006). Social expenses in the sections: “Social policy”, “Education”, “Healthcare”, “Physical education, sports, culture and media” amounted to 53.3% of all expenses of the consolidated budget. In 2006, the share of these expenses was 53.7%.
3. The essence and reasons for taxation. Types of taxes.
There are two main sources of covering the budget deficit:
1. Issue of new money, or emission method of covering.
2. Attracting a government loan, or a non-equity method of financing.
Inflation tax.
It is also a kind of “invisible” government loan and is a method of withdrawing funds from the population.
Inflation-assisted government borrowing is a method used by many developing countries to pay for government spending because other means of taxation are ineffective.
Influence on the volume of production in the country through the state budget.
Historical reference.
§ Taxes have existed at all times. However, even before 1936, the country's budget was used mainly to ensure the existence of the state itself and its institutions.
§ The use of the state budget to regulate demand and production in the country was proposed by J.M. Keynes and first implemented in the USA in 1936, during the Great Depression. Then President F. Roosevelt created the Federal Reserve System. Then similar fiscal systems were created in all countries with market economies, and since 1992 in the Republic of Belarus.
Influence on the volume of production in the country through the budget. Continued 1.
In a modern fiscal system, two key instruments influence the volume of demand and production in a country - a progressive scale of income taxes and government spending.
Government expenditures in the form of social transfers are directed to various groups of the population and in the form of grants and subsidies to various economic entities.
Since tax rates are revised less frequently (over decades) than the value of individual items of the state budget (approved annually or for 5-7 years), the main instrument is not tax policy, but budget policy.
Rice. Influence on the volume of production in the country through the budget. Continued 2.
Influence on the volume of production in the country through the budget. Continued 3.
Thus, the economy, once in a depression, may not come out of it for a long time. Example. During the Great Depression in the most developed countries at that time - England and the USA, unemployment reached 30%, a decline in production over the period. amounted to 50%, the number of suicides increased significantly, people began to rob stores.
Influence on the volume of production in the country through the budget. Continued 4.
- To prevent a reduction in demand, a progressive scale of income taxes is being introduced (on personal income and on corporate profits). As a result, those who earn more pay more to the budget, while those who find themselves bankrupt or lose their jobs pay nothing. Further, those people who have lost their jobs or, due to a decrease in income, have found themselves below the poverty line, receive benefits and additional payments from the budget, and those companies that are on the verge of bankruptcy receive subsidies and subsidies. The increase in AD from the budget can be described according to the expenditure components GDP = C + I + G + Xn. People who have nothing to eat will not save their income, and firms that do not have the means to resume production will not send money abroad. They will use the funds received to purchase goods and invest in production; Thus, firms that were expected to close: will resume production (Y) --- will rehire previously laid off workers (L) --- they will receive W --- AD will begin to gradually increase, which will lead to an increase in GDP.
Rice. Limited influence on production volume through the state budget.
Russia today is experiencing great difficulties not only in the field of government, but also in the sphere of economics and finance.
Finance plays a huge role in the structure of market relations and in the mechanism of their regulation by the state. They are an integral part of market relations and at the same time an important tool for implementing government policy. That is why today it is more important than ever to know the nature of finance, to deeply understand the peculiarities of its functioning, and to see ways of using it most fully in the interests of the effective development of social production.
A good knowledge of the financial sector is also necessary today because the country is experiencing a deep economic and financial crisis.
The past year has shown the complexity of the development of economic events and the progress of the budget process in the Russian Federation. Thus, the unrealistic nature of the 2002 budget, adopted under pressure from a number of line ministries, some departments of the Ministry of Finance, as well as under the influence of individual committees and factions of the State Duma and the Federal Assembly, largely guided by political considerations, had a negative impact on its implementation. Carrying out a restrained financial policy, the Ministry of Finance and local financial authorities covered expenses only within the limits of funds received, as well as loans from the Central Bank.
Old mistakes must not be repeated in 2004. In this regard, the government needs to develop a clear financial strategy. It is important to highlight the main trends in the development of finance, formulate the basic concepts of their use, and outline the principles of organizing financial relations.
Problems of financial recovery concern literally everyone today. After all, what is currently happening in the financial sector is closely related to the personal well-being of everyone. The amount of profit and taxes, contributions to social insurance and pensions, the price of stocks and bonds, forms of investment in production and the social sphere, etc. - such issues are discussed today not only in government circles, they deeply concern each of us.
Specific instruments for carrying out state economic policy are, first of all, such fiscal levers of influence, fiscal policy instruments as taxes, government spending, and transfers. With the help of fiscal instruments, the state is able to change the size and direction of cash flows in accordance with the goals pursued and the measures planned for their implementation.
This work will examine in detail the financial system, economic and fiscal policies of the state, goals and types of fiscal policy.
There is no single, generally accepted classification of types of economic policy; different authors call its individual types differently and form a general list of components of the state’s economic policy in different ways.
In a larger plan, it is customary to distinguish fiscal (financial and budgetary policy), monetary (credit and monetary) policy, and foreign economic policy.
In a broader sense, state economic policy includes such parts as social, structural, investment, privatization, regional, agricultural, scientific and technical, tax, banking, pricing, antimonopoly, environmental (ecological), foreign economic policy.
The essence of finance is manifested in its functions. Functions refer to the “work” that finance does. The question of the number and content of functions is controversial.
Famous financier A..M. Birman, identified three main functions of finance:
1. Ensuring the management process with funds;
2. Ruble control;
3. Distribution.
A. M. Alexandrov and E. A. Voznesensky argued that finance is expressed in the formation of monetary funds, the use of monetary funds and control.
However, no one denies that finance is a set of monetary relations organized by the state, during which the formation and use of funds of funds is carried out. And to the question of what is the source of the formation of numerous funds at different levels, there is usually only one answer - gross domestic product. The process of distributing the gross domestic product can be carried out using financial instruments: norms, rates, tariffs, deductions, etc., established by the state.
If we consider finance as a whole, then, apparently, we should assume that it performs two main functions: distribution and control.
The action of the distribution function of finance follows from the essence of finance: ensuring relations associated with the distribution and redistribution of the total social product (SOP), national income (NI) and net income (NI), the formation of income and savings; creating funds of funds. The specific mechanism of action of the distribution function follows from the essence of finance as a relationship for the distribution and redistribution of that part of the social product, the action of which occurs in conditions of separation, separation and bifurcation of the cost and material forms of the social product and national income.
The distribution function of finance reflects economic relations determined by the movement of net income, as well as its influence on the components and elements of the total product (thus creating conditions for the subsequent sale of this product in physical form through acts of purchase and sale).
Finance, through net income, not only mediates the entire process of social production, but also actively participates in the circulation of funds at all its stages, directly ensuring the process of expanded reproduction.
So, the social purpose of the distributive function of finance is, firstly, to distribute and redistribute part of the value of the total social product, mainly net income, in monetary form in order to ensure expanded reproduction; secondly, in the formation of potential opportunities for creating a financial basis for the functioning of the state and the entire economic system of any socio-economic formation.
Along with the distribution function, finance plays a control function . The control function is generated by the distribution function and is manifested in control over the distribution of the total social product, national income and net income among the corresponding monetary funds and their intended expenditure.
The control function quantitatively, through the movement of financial resources, reflects economic processes associated with the distribution and redistribution of the total social product. The control function is determined by the normative nature of monetary relations. Regulatory acts regulate both the terms of distribution of income and profits allocated for expanded reproduction, and the terms of payments to the budget (establishment of categories of payers, objects, taxation units, rates, benefit funds for payments, procedures for their calculation, etc.); financing from the budget (the procedure for opening budget financing and its use); lending; formation and use of various monetary funds of economic entities. It is the control over compliance with regulations that express the essence of the distribution function of finance that, in turn, reflects the content of the control function of finance. This is the dialectical and inextricable relationship between the two functions of finance. This implies the specificity of the control function - the control function is a derivative of the distribution function.
The financial system in the broad sense of the word is a set of financial relations existing within a given economic formation; in the narrow sense of the word, it is a system of financial institutions, the socio-economic content, functions and structure of which are determined by state policy, which includes financial organizations and all structural divisions of the state tax service.
The construction of a financial system is based on three fundamental elements:
1. Functional purpose, manifested in the fact that each link of the system performs its own tasks; for example, the state budget expresses the distribution relations between the state, enterprises, and the population, determined by the formation and use of a national fund of financial resources. Property and personal insurance is one of the methods of creating reserve funds for citizens. Enterprise finance expresses relations regarding the creation and use of monetary funds intended to meet the diverse needs of the primary links of social production, fulfillment of obligations to the state budget and commercial banks;
2. Territoriality - each region and republic has a corresponding apparatus of financial and insurance bodies;
3. The unity of the financial system is predetermined by the unified economic and political basis of the state. This determines a unified financial policy pursued by the state through central financial authorities and common goals. All levels are managed on the basis of uniform basic legislative and regulatory acts.
The financial system includes national, sectoral and public financial relations. The financial system as a whole is presented in Fig. 1.
Figure 1 Financial system diagram
Since finance is the carrier of distribution relations, this distribution occurs primarily between various subjects. Therefore, in the totality of finances that form the financial system, three main areas are distinguished (not counting households):
Finance of enterprises, institutions, organizations. Enterprise finance represents monetary relations associated with the formation and distribution of cash income and savings from business entities and their use to fulfill obligations to the financial and banking system and finance the costs of expanded production, social services and material incentives for workers;
Insurance. A significant part of the financial system associated with the redistribution of funds coming from legal entities and individuals. Such activities are associated with the possibility of sudden, unforeseen and irresistible events that entail damage, which is subsequently “distributed” among the insurance participants;
Public finances. They represent monetary relations regarding the distribution of the value of the social product and part of the national wealth, associated with the formation of financial resources of the state and its enterprises and the use of public funds for the costs of expanding production, meeting the growing socio-cultural needs of members of society, the needs of the country's defense and management.
The financial system is characterized not only by the composition of its parts, but also by the flows of financial resources (financial flows) connecting the main agents of financial relations. Such agents should be considered the state budget, enterprises and business structures, and households. In addition, financial flows connect these agents with the credit system and with foreign countries represented by their governments, firms, funds, and banks. As a result, a system of mutual financial connections and flows arises, depicted in a simplified form in Figure 2.
Figure 2 Scheme of financial connections in the economy
Behind each of the arrows indicated in the diagram there are many different financial connections, flows, and relationships. Based on the general scheme of financial flows between economic agents, we will consider individual, most representative connections and financial relations at different levels. These include: “state-enterprise” (SE), “enterprise-state” (PG), “state-state” (GG), “enterprise-population” (PN), “population-state” (NG), “ population-enterprise" (NP), "enterprise-enterprise" (PP), "population-population" (PP), "state-population" (GN). The “state-state” connection characterizes the redistribution, the flow of funds from one channel of the state budget to another. The "enterprise-enterprise" connection reflects financial flows between enterprises, and the "population-to-population" connection determines the flow of funds between individual groups of the population.
Modern fiscal policy determines the main directions for using the state’s financial resources, methods of financing and the main sources of replenishment of the treasury. Depending on the specific historical conditions in individual countries, such a policy has its own characteristics. However, a common set of measures is used. It includes direct and indirect financial methods of regulating the economy.
Direct methods include methods of budget regulation. The state budget finances:
Expenses for expanded reproduction;
Unproductive government expenses;
Development of infrastructure, scientific research, etc.;
Implementation of structural policy;
Using indirect methods, the state influences the financial capabilities of producers of goods and services and the size of consumer demand.
The taxation system plays an important role here. By changing tax rates on various types of income, providing tax breaks, reducing the tax-free minimum income, etc., the state seeks to achieve, perhaps, more sustainable rates of economic growth and avoid sharp ups and downs in production.
Among the important indirect methods that promote capital accumulation is the policy of accelerated depreciation. Essentially, the state exempts entrepreneurs from paying taxes on part of the profits that are artificially redistributed to the depreciation fund.
Depending on the nature of the use of direct and indirect financial methods, economic science distinguishes two types of state fiscal policy:
Discretionary;
Non-discretionary.
 |
Figure 4 Types of fiscal policy
Fiscal policy instruments are used by the state to influence aggregate demand and aggregate supply, thereby influencing the general economic situation, contribute to the stabilization of the economic situation, and carry out countercyclical measures to counteract excessive fluctuations in economic parameters that threaten the emergence of crisis phenomena.
Discretionary fiscal policy refers to the deliberate manipulation of taxes and government spending to change real national output and employment, control inflation, and accelerate economic growth.
There are two types of discretionary policies:
Stimulating,
Restrictive.
Stimulating fiscal policy (fiscal expansion) is carried out during a recession, depression, includes an increase in government spending, a decrease in taxes and leads to a budget deficit.
In the short term, it aims to overcome the cyclical economic downturn and involves increasing government spending , tax reduction or a combination of these measures.
In the longer term, tax reduction policies can lead to an expansion in the supply of factors of production and growth in economic potential.
The implementation of these goals is associated with the implementation of a comprehensive tax reform, accompanied by a restrictive monetary policy of the Central Bank and a change in the optimization of the structure of government spending.
A contractionary fiscal policy (fiscal restriction) is carried out during a period of boom and inflation, includes a reduction in government spending, an increase in taxes and leads to a state budget surplus.
Its goal is to limit the cyclical recovery of the economy and involves reducing government spending , increasing taxes or a combination of these measures.
In the short term, these measures reduce demand-side inflation at the cost of rising unemployment and a decline in production. Over a longer period, a growing tax wedge can serve as the basis for a decline in aggregate supply and the deployment of a stagflation mechanism (recession, or a significant slowdown in economic development), especially in the case when the reduction in government spending is carried out proportionally across all budget items and does not create priorities in favor of government investments in labor market infrastructure.
Prolonged stagflation against the backdrop of ineffective management of public spending creates the preconditions for the destruction of economic potential, which is often found in economies in transition, including Russia.
Within the framework of discretionary policy, various social programs, a state employment program, and changes in tax rates are considered.
The state employment program is one of the measures to combat unemployment and stabilize the economy. This program is being implemented at the expense of the state and local authorities. For example, widespread use in a market economy during the crisis of 1929-1933. Found a program for organizing public works. Under this program, the state, at the expense of budgetary funds, organized various types of work for the population on the principle of “just to occupy it” - sometimes some dug holes, while others buried them. Therefore, quite often, from an economic point of view, these programs were ineffective.
The main objective of these programs was to stimulate aggregate demand and relieve social tension in society in conditions of massive growth of unemployment.
Since these programs are quite wasteful, it is much more effective to implement regular countercyclical policies than to deal with the consequences of the crisis in an ineffective way.
Of course, these employment programs can be modified. Thus, to increase employment, small enterprises that provide maximum employment in their production can be encouraged. This practice is used in China.
In normal economic conditions, the government must have a strategic and clear employment program to effectively use it in a recession when people lose their jobs. Employment programs are usually quite flexible. They are very effective in the sense that, unlike public works programs, they require less costs and can be used by local authorities in any local market.
Expenditures on social programs include pension payments, various programs to help the poor, expenses on education, medicine, etc. These programs help stabilize economic development when incomes of the population are reduced. The main disadvantage of all these programs is that they are introduced during a recession and are difficult to cancel when the economy is booming.
Changing tax rates, from this point of view, is a more effective tool in an effort to stabilize the economy.
Thus, reducing income tax rates in a short-term recession can keep revenues from declining, thereby preventing the escalation of crises by increasing consumer spending.
But there is also a drawback here. Temporary tax cuts are not always appropriate to combat a recession, since in a democratic society it is usually more difficult to raise taxes after a recession has been overcome, and it can be much easier to organize political sentiment to combat unemployment than to combat the inflationary gap and overemployment.
Effective discretionary fiscal policy presupposes a competent diagnosis of ongoing economic processes, on the basis of which the government adjusts its levers.
However, it is impossible to fully know what the emerging trends in macroeconomics will result in. Therefore, the government cannot always predict the actual directions of economic development, which forces it to make decisions on setting fiscal policy with a certain delay. A time lag is formed between the need to adjust the economic levers of fiscal policy and government decision-making.
The delay in the action of the necessary levers of discretionary policy is also associated with the usual administrative procedures for organizing events caused by the implementation of a new economic policy.
The effect of adopting a new fiscal policy usually does not come immediately, because investments in production development pay off after a fairly long period of time.
The noted delays, time lags between the period of emergence of the need for new directions of fiscal policy and the receipt of the expected positive effect from their application overlap each other. This, of course, worsens the ability of discretionary fiscal policy to quickly adjust to ongoing changes in the economy and effectively correct them.
The second type of fiscal policy is non-discretionary, or the policy of automatic (built-in) stabilizers. The limited ability of discretionary fiscal policy to adapt to the needs caused by new economic proportions makes it necessary to supplement it with another type of fiscal policy that can continuously adjust tax revenues. This is done automatically using so-called built-in stabilizers.
A “built-in” (automatic) stabilizer is an economic mechanism that allows one to reduce the amplitude of cyclical fluctuations in employment and output levels without resorting to frequent changes in government economic policy. Such stabilizers in industrialized countries typically include a progressive tax system, a government transfer system (including unemployment insurance), and a profit-sharing system. Built-in economic stabilizers relatively mitigate the problem of long time lags in discretionary fiscal policy, since these mechanisms are “switched on” without direct parliamentary intervention.
Their essence lies in linking tax rates with the amount of income received. Almost all taxes are structured in such a way as to ensure an increase in tax revenues with an increase in the net national product. This applies to personal income tax, which is progressive; income tax; for added value; sales tax, excise tax.
Figure 5 Built-in stabilizers, where:
G- government spending;
T- tax revenues
In the graph, government spending is constant. In fact, they are changing. But these changes depend on the decisions of parliament and the government, and not on the growth of GNP (gross national product). Therefore, the graph does not show a direct connection between government spending and an increase in NNP. Tax revenues increase during a boom. This happens because sales and income increase. The removal of part of income by taxes restrains the rate of economic growth and inflation. As a result of the forces at play, in addition to the efforts of the government, the economy is prevented from overheating due to imbalances during the recovery.
During this period, tax revenues exceed government expenditures ( T > G ). A surplus arises in the state budget, which makes it possible to pay off government debt obligations incurred during a depressed period of the economy.
The graph also shows the fall in tax revenues during the period when the NNP decreases, i.e. production falls, which leads to the formation of a state budget deficit ( G > T ). If tax revenues had remained at the same level during the economic crisis, the economic climate for business would have meant higher economic risks, which would have provoked a further curtailment of production. This means that a decrease in tax revenues during this period objectively protects society from the growing crisis and weakens the decline in production.
Cyclical deficit (surplus) - a deficit (surplus) of the state budget caused by an automatic reduction (increase) in tax revenues and an increase (reduction) in government transfers against the backdrop of a decline (rise) in business activity.
Built-in stabilizers do not eliminate the causes of cyclical fluctuations of equilibrium GNP around its potential level, but only limit the scope of these fluctuations.
Based on data on cyclical budget deficits and surpluses, it is impossible to assess the effectiveness of fiscal policy measures, since the presence of a cyclically unbalanced budget does not bring the economy closer to a state of full employment of resources, but can occur at any level of output. Therefore, built-in economic stabilizers are typically combined with government discretionary fiscal policies aimed at ensuring full employment of resources.
As a result, a structural deficit (surplus) of the state budget arises - the difference between expenses (income) and income (expenses) of the budget under conditions of full employment. The cyclical deficit is often estimated as the difference between the actual budget deficit and the structural deficit.
The tax system should be improved in the following key areas:
A reduction in the tax burden is required. It is excessive since tax withdrawals during the preparation of the state budget have so far been planned in the amount of about half of GNP. World experience and theoretical developments show that the level at which mass flight from taxes begins determines the low level of tax collection. In addition, as a result of the crisis of non-payment of enterprises, the conditions for continuous production are undermined;
It is necessary to change the structure of tax revenues through a gradual increase in the level of taxation of individuals (income and property), as well as property taxes and rent payments in nature-exploiting industries, which will ensure an increase in payments for the use of natural resources. A sharp transition to preferential taxation of individuals is impossible, since the low incomes of the bulk of the population do not yet allow them to pay such taxes;
There is an urgent need to reduce tax benefits. In today's period, when there is a global revision of the tax system, the individualization of tax benefits results in confusion and corruption. This individualization of tax rates is only possible with a well-developed, established tax policy.
A combination of monetary and fiscal policy is used when the money supply increases in order to prevent the interest rate from increasing. The central bank prints money to buy securities, and then the government uses it to cover its budget deficit. When such an adaptation occurs, the curves IS And L.M. move to the right.
Figure 6 Monetary adjustment of fiscal policy
Fiscal expansion shifts the curve IS to level IS " and shifts the equilibrium from the point E exactly E". With a high level of income, the demand for money increases, the interest rate increases from i 0 before i 2 , whereby investment costs are crowded out. But the central bank can accommodate fiscal expansion by issuing more money. In the figure this is reflected by the shift of the curve L.M. before LM" and a new equilibrium point E". The interest rate remains at i 0 and the product level increases to i 1 . It is now clear that monetary fiscal policy can be used to expand aggregate demand and increase the national product.
So, with an increasing supply of money, there is a shift in the curve L.M. down to the right, a decrease in the interest rate, an increase in aggregate demand. On the other hand, one can use expansionary fiscal policy that shifts the curve IS up right. The alternative between monetary and fiscal policy as stabilization policy instruments is a complex issue.
It is important to consider how they affect the growth of aggregate demand. In this regard, there is a clear difference between monetary and fiscal policy. Monetary policy has an impact by stimulating the interest rate components of aggregate demand, especially investment spending. Convincing proof of this is the rapid and strong effect of monetary policy on housing construction.
Fiscal policy, on the contrary, has an impact through government purchases of goods and services or through changes in taxes and transfers (government spending here refers to defense spending, reductions in corporate income taxes, and social security contributions).
Let's consider the influence of the components of fiscal policy on key variables. One of the interesting cases is investment subsidies, when the state subsidizes investments, thus, as it were, paying part of each firm's investment costs, i.e., at each percentage level, firms now plan more investments (Fig. 7a).
Figure 7 Impact of investment on GNP
Curve IS(Fig. b) shifts by the amount of investment growth (Fig. a) (time multiplier a is still in effect). A new equilibrium is reached at the point E". The interest rate rises, but this does not cancel the effect of investment subsidies.
The figure shows an economy initially located at E. part-time and then reaching the level of product output y* at full employment. To achieve this level of product, fiscal policy (expansion) can be used to advance to the point E 1(with a higher interest rate). One can choose the monetary expansion leading to a state of full employment with a lower interest rate (E 2). You can also choose a combination of fiscal and monetary policies leading to some intermediate state. (Monetary expansion shifts LM downward to the right, fiscal policy shifts the curve IS right up). A decrease in the interest rate in the event of monetary expansion means that investment will increase from E 2 before E 1. Both financial policies increase product, but their impact on different sectors of the economy is different. You need to decide what will provide the greatest benefit.
Conservatives argue for the need to cut taxes. They support stabilizing policies, in which taxes are reduced during recessions and government spending is reduced during booms. Others believe that it is necessary to expand the field of activity of the state in the field of education, environmental protection, personnel training, etc. and, therefore, to support expansionist policies in the form of increased government spending. It has been proven that it is necessary to act through a reduction in the interest rate while supporting the growth of investment spending, i.e. That is, government officials can choose policies that will not only bring the economy to a state of full employment, but will also help solve other problems.
Figure 8 Choice between monetary and
fiscal policy
Tax policy is part of fiscal economic policy,
manifested in the establishment of types of taxes, objects of taxation,
tax rates, tax collection conditions, tax benefits. The state regulates all these parameters in such a way that the receipt of funds through the payment of taxes ensures the financing of the state budget. But at the same time you have to meet with the main
a contradiction between tax and overall fiscal policy.
The higher the tax burden, the lower, starting from a certain limit,
desire and ability to pay taxes and, what is much more important, the more
damage caused to production, creation of a taxable product,
collection of taxes. High taxes undermine the tax tree itself,
which feeds them. So the basis of state tax policy
Not high, but rational tax rates should be set.
Another thing is that the state manages to bind itself with such budgetary
obligations of expenses, which is forced to seek salvation in tax
collections to ensure budget expenditures.
The state's tax policy is connected not only with ensuring budget revenues, but also with the ongoing structural and investment policy. By regulating taxes, tax rates, tax benefits, the state is able to stimulate the development of certain types of production, influence the structure of consumption, and encourage investment in economic development.
Thus, fiscal policy, being the most powerful direction of state economic policy as a whole, combines a set of a wide variety of financing, budgeting, and taxation instruments.
Assessing the effectiveness of fiscal policy is extremely
problematic.
Both discretionary and automatic fiscal policies play an important role in the stabilization measures of the state, however, neither one nor the other is a panacea for all economic ills. As for automatic policy, its built-in stabilizers can only limit the scope and depth of fluctuations in the economic cycle, but they are not able to completely eliminate these fluctuations.
Even more problems arise when pursuing discretionary fiscal policy. These include:
The presence of a time lag between decisions and their impact on the economy;
Administrative delays;
Predilection for stimulus measures (tax cuts are politically popular, but tax increases can cost parliamentarians their careers). However, the most reasonable use of both automatic and discretionary policy instruments can significantly influence the dynamics of social production and employment, reduce inflation rates and solve other economic problems.
Let us consider the nature of fiscal problems in Russia during the transition period. It lies in the fact that they cannot be solved once and for all. They can be revived not only in the event of emergency situations (for example, war or natural disaster), a negative external shock, or simply a deterioration in economic conditions. A slowdown in the pace of necessary institutional and structural reforms, as well as a weakening of fiscal discipline, quickly leads to serious fiscal difficulties.
The different paces and paths of the transformation process in individual countries do not allow us to offer a unified description of fiscal problems in the post-socialist world.
From the data contained in Table 2.1, we can conclude that the main reason for the unsuccessful or delayed macroeconomic stabilization in Russia was the incompleteness of external and internal liberalization of their economies, the failure to carry out the necessary structural reforms (primarily in agriculture, fuel, energy and the military-industrial complex ), "soft" financing of the unreformed sector of state-owned enterprises and banks, as well as political and organizational weaknesses of key government institutions (for example, tax and customs inspections).
Table 2.1.
Data on fiscal policy in Russia
in 1991-1994 (percentage of GDP)
| Position | 1991 | 1992 | 1993 | 1994 |
| Federation Budget | ||||
| Income | 22,8 | 16,6 | 13,7 | 11,0 |
| Expenses | 23,6 | 27,4 | 20,3 | 21,9 |
| Balance | -0,8 | -10,7 | - 6,7 | -10,9 |
| Regional budgets | ||||
| Income | ... | 17,6 | 15,7 | 17,5 |
| Expenses | ... | 17,0 | 16,0 | 17,0 |
| Balance | ... | 0,6 | -0,3 | 0,5 |
| Balance of extrabudgetary funds | ||||
| - 2,2 | 2,5 | 0,6 | 0,5 | |
| Off-budget import subsidies | ||||
| - 4,2 | -11,9 | -2,1 | ... | |
| Balance of the consolidated budget | ||||
| Subsidies | ... | 8,9 | 8,6 | 7,5 |
| Balance | -5,7 | -18,8 | -7,6 | -9,9 |
The policy of slow reform and further financing of inefficient sectors of the economy, carried out under the populist slogans of social protection of the population (especially the poorest strata), as well as mitigation of the severity of the transformation process, in reality imposed a huge burden of inflation tax on the entire society and gave rise to numerous pathological phenomena, usually accompanying high inflation. It must also be taken into account that a prolonged period of very high inflation usually leads to significant demonetization of the economy and the destruction of the tax base for a long time. This is why social spending had to be cut.
As the table shows, Russia finally managed to achieve a serious reduction in inflation. However, a fairly high budget deficit remained with low or even very low levels of budget revenues.
Table 2.2
Annual inflation
( December to December, percentage)
| 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997 |
| 144 | 2501 | 837 | 217 | 132 | 22 | 14 |
In 1994-1995 There was an interesting debate between Jeffrey Sachs and the IMF regarding the strategy for conducting primary macroeconomic stabilization in post-socialist countries against the background of unsuccessful attempts at stabilization in Russia in 1992-1993. Jeffrey Sachs accused the IMF of being too strict in its approach to the requirement of fiscal balance, which did not take into account political realities (this criticism was not correct, since as part of the systemic restructuring programs operating at that time in the CIS countries, the IMF agreed to a very high budget deficit, up to 10% GDP, with the level of monetization of the economy not exceeding 20% of GDP), proposing, for its part, a fixed exchange rate policy as the main anti-inflationary anchor, supported by a stabilization fund created by international financial organizations and states of developed countries (modeled on Poland in 1990). According to this concept, a securely fixed exchange rate should quickly reduce inflation expectations and increase demand for the national currency, thereby expanding the room for maneuver in the field of monetary and fiscal policy. A moderate fiscal deficit should be financed by foreign bailouts and the issuance of Treasuries.
Anti-inflationary programs in those CIS countries where they were successful actually followed the scenario proposed by Jeffrey Sachs. Almost everywhere, the key role was played by the actual stabilization of the exchange rate (although the rate was often formally floating), as well as a sharp limitation of emission financing of the budget deficit and quasi-fiscal operations of central banks. However, the budget deficit itself remained significant - typically around 5% of GDP and higher. Its financing comes primarily from foreign aid and the issuance of government securities.
International assistance in the form of grants and concessional loans (primarily the IMF and the World Bank) played a significant role. Russia used external financing, but in most cases these were loans obtained on more or less normal market conditions. Russia has greatly developed domestic borrowing by issuing various types of treasury bills and government bonds. The situation on international financial markets in 1996 and the first half of 1997, i.e. the availability of free capital and the willingness of investors to invest it in the so-called new market economies ( emerging markets) contributed to the development of this relatively cheap and easily accessible source of financing the budget deficit (especially attractive in conditions of stable exchange rates).
However, large-scale internal and external borrowing allows solving fiscal issues and ensuring macroeconomic stability only for a short period. The growing volume of public debt (especially in the context of the continuing decline in officially recorded GDP) very quickly aggravates the burden of current interest payments and can easily lead to a liquidity crisis in public finances.
The situation in Russia does not look very optimistic, since the significant debt inherited from the USSR is being superimposed by rapidly growing new obligations.
A series of financial crises in new market economies in 1997, and the resulting instability in international financial markets, sharply limited the possibilities for relatively cheap external financing.
The actual picture of balancing public finances in Russia usually looks much worse than can be concluded from official budget data. This happens because the budget cash deficit does not reflect the actual balance of public finances, and the officially registered public debt does not reflect all actual and potential obligations of the state.
So, August 1998. Default - not only on GKO-OFZ, but also on foreign currency obligations of private firms and banks. Russia's debts were considerable, but not critical: internal debt was about 40% of GDP, all external debt was less than 50% of GDP. The gap also widened in ruble and dollar interest rates, but not in the dollar borrowing rates of Russia and other countries, which meant a lack of confidence in the Russian currency, not in the government's solvency. By financing almost 1/3 of all expenses through the sale of GKO-OFZ, the state built a pyramid and it was supposed to collapse - but in three years, and not now. What did the restructuring of state bonds give: savings of $2 billion per month until the end of 1999 in the form of deferred payments. At the same time, direct losses (the possibility of borrowing to finance the budget deficit) are of a similar magnitude. Plus indirect losses associated with loss of confidence in the state and financial institutions and withdrawal of deposits. All this led to the launch of the printing press and inflation.
At present, the shortcomings of financial policy that hinder the economic and social development of the Russian Federation have become especially acute. These include:
The dogmatic (uncreative) nature of financial policy, its inability to quickly respond to the changing conditions of the development of our state;
Lack of strategic developments;
Carrying out partial, unfounded tactical measures aimed at short-term gain;
Separation of financial policy from the actual state of affairs in the economy;
Violation of the balance of the state budget of the Russian Federation;
Residual approach to determining the financial base for meeting the social needs of citizens.
All this directly affects the underdevelopment of the budget system and financial policy of the country.
In conclusion, it must be said that, despite some negative trends in Russian financial policy, the ongoing reforms open up broad prospects for the development of both the public and private sectors of the economy.
Russia is now following a difficult path of reform. Undoubtedly, the government's financial policies are controversial. It contains both positive aspects and many negative aspects. It is greatly, often negatively, influenced by the political aspects of economic decisions that release inflation and increase the already large budget deficit.
The demands of the agricultural, industrial and military lobbies also hinder an adequate assessment of the economic situation. In turn, the desire of various parties to carry out the orders of their voters at any cost, despite the complexity of the economic situation, increases spending on the state apparatus. And also the unpromising decisions of the government, which, following the lead of powerful lobbying groups and federal subjects who have felt their strength, is trying to please each of them, proportionally distributing meager budget revenues and thereby finally neutralizing the modest benefits that they could bring if they were concentrated on any one priority project. All this, of course, negatively affects the objectivity of fiscal policy, the general situation in the country, and, ultimately, the standard of living of the population.
Curious cases when loans from the International Monetary Fund that have not yet been received are already included in the budget also do not add confidence in the future. However, despite the difficulties that always accompany a transition economy, I would like to express the hope that reforms in the budgetary sector will have a positive impact on the overall economic situation in the country and, together with other government regulatory measures, will put the domestic economy on its feet. I also see that a significant contribution to strengthening the economic base of the Russian national economy will be made by the private sector of the economy, to which financial policy should provide maximum opportunities for growth.
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