Fiscal Discipline

Fiscal discipline is defined as the ability of a government to sustain smooth monetary operation and long-standing fiscal condition.It is a benchmark for tax devolution. It was used since 11th Finance Commission to provide an incentive to states handling their finances deliberately. The index of fiscal discipline is accepted by comparing progress in the ratio of revenue receipts of a state to its total revenue expenditure comparative to the corresponding average across all states. It twigs into:

  • Multi-year outlook on budgeting
  • Mechanisms to sustain fiscal wellbeing and steadiness over business cycles
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Question for the Day on the Topic

Consider the following statements

  1. Fiscal discipline is defined as the ability of a government to sustain smooth monetary operation and long-standing fiscal condition.
  2. It is a benchmark for tax devolution.

Select the correct ones

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2

Answer: C

Frequently Asked Questions on Fiscal Discipline

Q1

Q 1. What is the meaning of fiscal discipline?

Ans. A balance between the Government expenditure and revenue in an economy is known as fiscal discipline. It is important to maintain this balance, else the expenditures may exceed the government receipts.
Q2

Q 2. What is the importance of fiscal discipline?

Ans. If fiscal discipline is not maintained then it can lead to depreciation of currency and inflation in the economy. It will help in maintaining an overall stability in the economy.
Q3

Q 3. What are the different types of fiscal policies?

Ans. There are three different types of fiscal policies:

  • Neutral Policy
  • Expansionary Policy
  • Contractionary Policy
Q4

Q 4. What is the meaning of fiscal deficit?

Ans. When the expenditure of the Government exceeds its revenue in a year, it is called fiscal deficit. For more information regarding Fiscal Deficit, candidates can visit the linked article.
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