Public Finances

Fiscal policy is a branch of economic policy that sets the budget, and its components, government spending and taxes as control variables to ensure and maintain economic stability, cushioning the fluctuations of economic cycles and helping to maintain a growing economy, full employment and without high inflation.

Framework

The financial activity of the state plays in modern societies three basic functions, a function of resource allocation, a redistributive function and a stabilizing role. By the mapping function, the State provides goods that, under certain circumstances, the market does not provide adequate due to the existence of so-called market failures. The redistributive role of the state, tries to reconcile the differences that occur between the distribution of wealth that makes the market system and distribution society considers just, that involves ethical, political and economic. The stabilizing function, which is part of fiscal policy, try to get financial system stability and to avoid imbalances and bring the necessary adjustments in aggregate demand in each case to overcome situations of inflation or unemployment.

Objectives end of the fiscal policy

As stated above the main objectives of all fiscal policies are:

• Accelerating economic growth.
• Full occupation of all the productive resources of society, both human and material and capital.
• Full price stability, defined as the general price indices do not suffer significant elevations or reductions.