5.3.2 Fiscal Policy

Meaning: the government's use of taxation, expenditure and borrowing to steer the macroeconomy (the budget as an instrument, not just an account — Unit 4.5's justice dimension here joined by the stabilisation dimension). Types:expansionary (higher spending and/or lower taxes — the deficit stimulating demand: the Keynesian recession medicine) vs contractionary (surplus bias — cooling the boom). Objectives: output and employment stabilisation; price stability; redistribution (the justice objective — 4.5); the growth-capital objective (public investment's role); debt sustainability (the intertemporal constraint). Tools: government expenditure (current and capital — the capital budget's multiplier promise against its underspend reality — 4.3's Nepali diagnosis); taxation (rates, allowances, the investment incentives); transfers (the allowances — the automatic stabiliser and the stimulus both); public borrowing (domestic and external — the financing that converts tomorrow's taxes into today's demand). Theanalytics: the multiplier (spending's amplified effect: the marginal-propensity arithmetic — every rupee spent respent); crowding out (domestic borrowing competing with private credit — Nepal's standing concern: the development-bond issuance and the loanable-funds squeeze); the automatic vs discretionary distinction (5.1's pair); the lags (recognition, decision,implementation — why fiscal timing misses); the debt dynamics (r vs g — the interest-growth race that decides sustainability). Fiscal-monetary coordination (the policy mix): the twin stabilisers must not fight (a tight-money-loose-fiscal mix strangles private credit while the state spends — the classic incoherence); in…