Fiscal Policy

(redirected from Contractionary fiscal policy)
Also found in: Dictionary, Thesaurus, Financial, Wikipedia.
Related to Contractionary fiscal policy: Expansionary Fiscal Policy

Fiscal Policy


the aggregate of measures pertaining to the accumulation of financial resources and to the state’s distribution and use of the resources in discharging its functions; an important sphere of economic policy. The nature and social orientation of fiscal policy and the extent to which the policy affects the development of the country’s productive forces and production relations are governed by objective laws of economic development and by the country’s sociopolitical structure. Among the more important methods and procedures for carrying out fiscal policies are state revenues and state expenditures, the state budget, taxation policy, state credit, and financial control. In the broad sense of the term, fiscal policy also includes the regulation of credit and monetary relations.

In capitalist countries, fiscal policy is the expression of antagonistic class contradictions; it is designed to preserve and increase capitalist property and to expand the sphere of exploitation of the working people. Under state-monopoly capitalism, fiscal policy is geared toward state intervention in the economy; it seeks to strengthen the economic and political power of the monopolies and to ensure that the monopolies enjoy high profits. The state can safeguard these profits by placing advantageous orders with the monopolies, by allowing accelerated depreciation, by rapidly increasing the tax burden of the working people and extending the financial benefits to monopolies, and by investing in sectors requiring substantial initial outlays but not promising sufficient profits. Examples include outlays by the state on infrastructure (railroads, highways, bridges, canals, communication lines, airports), on the development of vocational education, and on public health and scientific research. Examples are also provided by direct subsidies to monopolies, by increased spending on the parasitic state apparatus, and by defense spending aimed at increasing the potential to wage imperialist wars. The fiscal policy of the capitalist state plays an important part in economic expansion abroad and in carrying out a policy of neocolonialism. Communist and workers’ parties and the progressive labor unions in capitalist countries are struggling to secure a sharp reduction in defense and other nonproductive spending, to reduce the tax burden of the working people, and to increase spending on social programs.

In developing countries that are bringing about progressive socioeconomic transformations (for example, Algeria and Burma), fiscal policy is subordinated to the tasks of winning economic independence, developing the national economy, and expanding the internal sources of finance for social and economic progress.

In socialist countries, fiscal policy derives from the planned use of public finances in the process of extended socialist reproduction. The use of the finances is based on a conscious, purposeful application of economic laws; consideration is given to the pressing needs of social development, the actual potential for financing these needs, and the domestic and international situation. The state pursues its fiscal policy in order to promote socialist transformations and the building of communism. Policies are designed to sustain a high rate of economic development, secure a steady rise in the people’s standard of living, monitor the amount of labor and amount of consumption, and strengthen and develop economic and cultural ties with other countries. In carrying out the fiscal policy, an optimal apportionment of national income and total social product is ensured, as is the formation of centralized (national) and decentralized monetary funds. V. I. Lenin, who attached great importance to a unified, carefully defined fiscal policy in carrying out the social and economic tasks of the Soviet state, noted that “any radical reforms will be doomed to failure unless our financial policy is successful” (Poln. sobr. soch., 5th ed., vol. 36, p. 351).

In the USSR, the specific tasks for fiscal policy are defined by the CPSU with due regard for the objective regularities and special features of a given historical stage in the development of Soviet society. During the socialist revolution and period of transition from capitalism to socialism, fiscal policy was aimed at undermining the economic might of the bourgeoisie, restricting the sphere of capitalism and ejecting capitalist elements from the cities and countryside, laying the foundation for a socialist economy, and strengthening the dictatorship of the proletariat. The most important measures were the nationalization of the banks and insurance companies and of large-scale industry; the repudiation of prerevolutionary Russia’s foreign and domestic debts; the introduction of progressive income and property taxes, state social insurance, and a broad system of social consumption funds (free education and health care, social insurance, social security); and the radical reorganization of financial and credit relations at enterprises and in sectors of the national economy.

Fiscal policy played an active part in socialist industrialization, in the collectivization of agriculture, and in the cultural revolution. It was also important in ensuring the victory of the Soviet people in the Great Patriotic War (1941–45) and in bringing about the postwar reconstruction and development of the national economy. Fiscal policy has also played an important role in equalizing and raising the economic and cultural levels of the Union republics, and strengthening the country’s defense capability.

In the stage of developed socialism, fiscal policy is concerned mainly with strengthening the influence of the financial and credit mechanism on the development and efficiency of social production on the basis of accelerated scientific and technological progress and a growth in labor productivity. Fiscal policy is also playing a larger part in the overall system of financial and credit levers in financing the construction of the material and technical basis for communism, in strengthening ruble control, that is, the appropriation of funds on the basis of work completed, and in mobilizing the national economy’s resources in order to satisfy the growing material and cultural needs of the people.


Lenin, V. I. “Doklad na I Vserossiiskom s” ezde predstavitelei finansovykh otdelov Sovetov 18 maia 1918 g.” Poln. sobr. soch., 5th ed., vol. 36.
Lenin, V. I. “O demokratizme i sotsialisticheskom kharaktere Sovetskoi vlasti.” Ibid., vol. 36.
Materialy XXIV s”ezda KPSS. Moscow, 1971.
Materialy XXV s”ezda KPSS. Moscow, 1976.
Aleksandrov, A. M., and E. A. Voznesenskii. Finansy sotsializma. Moscow, 1974.
Den’gi, kredit i finansy v sotsialisticheskom obshchestve. Moscow, 1975.


References in periodicals archive ?
The contractionary fiscal policy regime needs to be relaxed, with a shift from revenue mobilisation to current expenditure reduction.
Together with the need for a contractionary fiscal policy in order to meet the surplus target, this means that for the next few years there will be no margin for unfunded measures in 2015-2017.
Recovery is also slowing in the United States, one reason being a shift toward a contractionary fiscal policy.
To ensure that the long-term targets for general government finances are met, a contractionary fiscal policy will be needed when the economy begins to recover.
Given the positive tendency of the labour market and a somewhat less contractionary fiscal policy, rising consumption will contribute increasingly to GDP growth in 2008 and 2009.
Although some of the improvement is cyclical, the main reason for this development is a contractionary fiscal policy, particularly in the US.
However, recovery is expected to be sluggish, and next year it will be slowed somewhat by a more contractionary fiscal policy in Germany.
But the purchasing power of households will be limited by a more contractionary fiscal policy, particularly in 2007, when the tax on consumer goods is expected to increase.
A more contractionary fiscal policy of this nature should be balanced as much as possible by a more expansionary monetary policy.