Public policy is a framework, through which the governmental activities are executed for the benefit of the people. Usually, it is the fiscal policy that has a great impact on the local government and the people, because; it is the force driving force behind the success and/or failure of the economy. The fiscal policy might increase or reduce the taxation, consequently, boosting the economic performance of the country (Cropf, 2008). Therefore, it is the fiscal policy that the country adopts, which entice businesses persons, investors and emerging local enterprises, thereby, impacting directly on the local government. This paper presents an analysis of the positive and negative effects, which the fiscal policy has on the local government’s operational budget in my area of residence.
Some of the positive effects of the fiscal policy on the local governmental operation include, work incentives, labor productivity, and investment decisions.
Concerning work incentives, the is unilateral agreement that the policy paper that posts an increase in the income rate tax, and/or increases the contributions to the National insurance, lowers the overall net income on the time taken, to complete the task. Therefore, it acts as a motivation for the workers, who would in turn hope to take longer time to work, so that they increase the targeted net income at a relatively lower rate (Cropf, 2008). In this scenario, most of the local government workers would be willing to extend their services, which consequently increase the quantity and quality of production. However, for the workers who are not willing to take longer time at work, the policy might discourage them because, if they work for fewer hours, the net income would not meet the targeted goal.
In the local government, the employees’ productivity is very essential in determining the quality and efficiency of the services, which they provide. Therefore, the tax measures, which the government implements can significantly affect the workers’ productivity (Lee, Johnson & Joyce, 2008). Indeed, the tax cuts increase the rate and efficiency of production, whereas, the increase that is imposed on the tax would discourage the workers, because; it would have a corresponding increase in the cost of living (Cropf, 2008). In addition, the motivated workers would make sure that the quality of the goods that they produce are of the highest standards, thereby, stressing the need for liberal tax measures. As a result, it might facilitate the business operation and boot productivity.
In business, the tax measure that the government enforces would reduce the investment desire of prominent business personalities. In essence, the ideal business environment guarantees the investor of maximum profit, or minimal profit margin. Therefore, the taxes and duties on goods, whether produced or imported to the country determine the nature and number of investment in the local government (Lee, Johnson & Joyce, 2008).
If the government lowers the corporate duties, and those taxes that they impose on the emerging investments, then, the local government would witness an increase in business empires in the area. In turn, this would increase the revenue for the local government, and a corresponding increase in the job opportunities for the youth in the region. Furthermore, there would be increase in the capital stock on each employee’s productivity. The government may also introduce tax allowances in order to strengthen research on the business, encourage more prominent investors and subsequently develop the businesses (Starling, 2008).
Despite the benefits of the fiscal policy, there are certain problems, which the fiscal policy causes to the local government. They include, demand management, fiscal crowding-out, and budget deficit.
Essentially, the aggregate demand of the fiscal policy is extremely difficult to manage. In order to stabilize the demand and the intended output, the local government has to invest heavily in management (Lee, Johnson & Joyce, 2008). In reality, the management charged with the responsibility to administer such demand consists of qualified and experience personalities, who are expensive to maintain. Indeed, this would dig into the finances of the government, sometimes, incapacitating its service delivery.
In cases where the budget is relatively higher than the net income, the local government would be obliged to seek for additional funds from an external source (Cropf, 2008). Increase in taxation, would automatically raise the revenue of the government, thereby, necessitating an urgent borrowing. The government might experience difficulties in financing the shortage, thus, forced to borrow from the private businesses. The process of repayment of the loan usually derails the service provision in the local government.
In running the affairs of the local government, the fiscal policy that raises the budget creates a deficit in the expenditure (Starling, 2008). Basically, the deficit might interfere with the normal financial expenditure of the government, thus, destabilizing its financial position and service delivery.
In sum, the fiscal policy that the local government adopts, determines its level of development and financial position. In addition, there are positive effects of the policy on the local government operation include work incentives, labor productivity, and investment decisions. Finally, the policy might have some shortcomings, which include demand management, fiscal crowding-out, and budget deficit.
- Cropf, R. A. (2008). American Public Administration. New York: Pearson Longman.
- Lee, R. D., Johnson, R. W., & Joyce, P.G. (2008). Public budgeting systems (8th ed.). Sudbury, MA: Jones and Bartlett. ISBN: 9780763746681.
- Starling, G. (2008). Managing the Public Sector. (8th Edition). Boston: Thomas Wadsworth.