Fiscal Policy and Trade Policy

The public Sector or the government participates in the markets to regulate and control price fluctuations that may lead to inflation. In economics, the government influences the econoy through its revenue and spending. This is termed as Fiscal Policy.

Objectives:

  • To relate trade policy with fiscal policy.
  • To discuss the different types of revenue of the government

 

Trade policy refers to rules and regulations exercised with regard to trades, more specifically, international trade. The Government undertakes such policies to achieve a free and smooth trade with other countries. The existence of trade policies, governments are able to generate income in the form of tariff revenue.

 

Government Revenue

Taxes are the duties imposed by the Government on households and business in the Philippines, the Bureau of Internal Revenue is the agency responsible for Tax Collection.

 

Tariffs are taxes charged on either imported or exported goods. The collection of tariffs is undertaken by the Bureau of Customs.

 

Kinds of Tariffs

Protectionist Tariffs – Normally, the tariffs are levied as a protection policy, where tariffs serve as barriers to trade.

 

Revenue Tariffs – serve as revenues of the Government.

 

Revenues from both taxes and tariffs are used for government expenditures.

 

Fiscal Policy

The Ideal level of taxes and tariffs needs to be achieved for sustainable growth. A tight or loose fiscal policy is undertaken to be sure that the collection of tariffs and takes responds to the government’s needs for revenues.

 

Tight Fiscal Policy – the government imposes more taxes to contract aggregate demand and correct inflation. The higher the taxes, the less likely the consumer spends. The government also lowers its spending, which leads to improvement in its budget deficit.

 

Loose Fiscal Policy – the government lowers taxes and tariffs. When there is a contraction or recession in business, the government tries to resolve the declining economic activity by an expansionary or loose fiscal policy. The taxes will be lowered as the government increases spending. With these, consumers are encouraged to spend.

 

Trade Policy and Globalization

International Trade happens as countries develop specialization in the production of goods and services. Likewise, if countries have a comparative advantage over other nations in the production of certain goods and services, they engage in trade with other countries.

 

Globalization is the integration of national economies into the international economy through trade, foreign direct investment, capital inflows, migration, and technology. Economic gains of international trade include:

  1. High level of competition
  2. Minimization or eradication of opportunity cost; and
  3. Expanded market

Filipino Presidents have different viewpoints on matters pertaining to international free trade and liberalizing imports.  Since it is not suitable for the economy to import so much, some of them were careful to select what were to be imported.

The Filipino First policy of Carlos P. Garcia, for instance, protected young industries from foreign competition. However, other leaders see this kind of policy as detrimental to development.

Problem that arise with globalization:

  1. Spread of disease;
  2. Environmental degradation;
  3. Brain drain;
  4. Global drug trade.

World Trade Organization and the General Agreement on Tariffs and Trade

The Philippines promoted economic reforms through trade liberalization to develop healthy competition and encourage improved output of domestic products. The Philippines signed up to become a member of the World Trade Organization and committed to abide by the General Agreement on Tariffs and Trade in 1995.

World Trade Organization – is an international body established for the very purpose of promoting trade liberalization.

General Agreement on Tariffs and Trade is an international agreement which tariffs and other trade barriers such as inspection regulations and quotas are reduced or eliminated to allow free exchange of goods and services among nations.

 

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