Fiscal policy in the Modern Economy

Fiscal policy in the Modern Economy - In the terminology of classical capitalist economy, the Government is forbidden to interfere in the issue of economic activity will only cause a negative effect on the effective use of resources in the community, because the effectiveness of economic activity in their view is to let each individual community, because the effectiveness of economic activity in their view is to let each individual society to take decisions in accordance with the mechanisms of market economy without any intervention of that mechanism. On the basis of such thoughts, then the capitalist economics very limiting government involvement in the classic only within the limits of; how the Government is trying to get revenues to cover its expenditure which is strictly limited, with a mechanism for dividing the burden to individual people were an equitable division of pattern according to them.

Thus, the characteristics of the role of Government in the terminology of classical economics can be summed up in the following points.

  1. The Government should be neutral, meaning that the Government in the activities and efforts in its revenue and its expenditure brought together should not have an economic motivation, let alone to affect the price of goods and services that have been set by market mechanisms in the system of market competition. The role of the election by the Government to meet the needs of the community is just another form of service that include defense, security, justice and a number of activities that do not have the effect of price changes that will make the market shake-up.
  2. The Government should seek to minimize the cost of the expenditure. Thus the burden will be borne by the community is not onerous. It is in accord with classical economics that convinced themselves that the individual will be more capable and effective Government in managing the total economic resources. For the purpose of such individuals should be given full opportunity to the rations and the use of existing resources, and one of the mechanism is to minimize the burden of taxes to be paid. That is to say the Government should really be able to realize a task with a cost as little as possible.
  3. For them a capitalist economy is also ignorant of the existence of classical budget deficit or surplus. Government policies should be with a balanced budget. Their reason is if the budget surplus means the levy tax reach to the community is considered to be high, and the surplus value is to be not effective and efficient in the hands of the Government than if the value is in the hands of individual surplus last community. If the budget deficit so the Government will borrow on the private sector, and the value of such loans will be allocated to the sectors of consumption, while if the value of the loan is still in the hands of the power of private or individual will be allocated to the sector by the Government.
The core flow of thought and theory of capitalist classic based on the assumption – assuming a very limited one, including the assumption of a competitive market in market mechanisms that apply. In reality what is assumed by the experts of these difficult classical capitalist economy so stated the market system is not able to realize an effective use of resources. In other words that the market system was unable to achieve balance and stability as what they believe. Even on the contrary, in its history suffered tossing them into a capitalist economy-tossing them into a continuous economic, have not even able to give the concept of a fundamental and final settlement.

The great depression of the thirties that occurs at the end of the twentieth century is proof of the inability of the capitalist theory, classical and the incident at once gave birth to the flow of the modern capitalist economy, led by Lord Keynes with his work "The General Theory of Employment, and Money".

The flow of the modern capitalist economy seeks to study the economic activities as a whole; therefore, their studies are also directional on variable macroeconomic variables, such as income, the total production, consumption, investment and savings. Macroeconomic analysis to try to explain the relationship between each variable to the elements that influence over these variables within the framework of macroeconomic later gave birth to a new dimension of understanding of the role of Government in economic activities, even put in important positions in government sector in economic activities even studied in particular. The Government is just a paradigm that institutions which serve the interests of the public are limited without disturbing the stability of the market has turned into institutions that have a very decisive role in the economy. Even if the Government should only be used to have budgeted spending on consumption sector alone, then in the terminology of modern capitalist economy, the Government can transmit on the production sector and in economic activity. In view of the classic economic income is the Government's efforts to cover its needs, it is in the modern economy's opinion is an effective tool in achieving economic goals.

Thus, economic objectives are heavily dependent on the extent to which effect is given by the Government's policy of macroeconomic variables. But the achievement of those objectives rather than through a mechanism that automatically runs on its own as it is believed by the classic with its market mechanism but rather to the designs of economic policies that are created by various Governments.

As for the economic thinking that Communism is the negation of the core thoughts on the existence of God, are convinced that the ala is going on with evolution mini and the contention between one and more, it is in this world there is no one but a body moves with the concept of the conflict. This is the rationale underlying the pattern of community development, economy, politics, civility, and his thoughts.

If we explore the concept of Islam regarding the role of Government in the economy, are we going to get that one of the characteristics of the economic system of Islam is "Multy Ownership" which means that Islam recognizes multiple ownership, private ownership, ownership of the public, and government ownership. With the belief that all forms of ownership is only a God-given mandate and Only God is the absolute owner. Based on the Islamic concept of ownership that we are going to get that what is believed by modern economy regarding the role of Government in its economic policy, established by the Islamic prophet Muhammad as the founders since the State of Medina which was later developed by his successors, with the general rule always refers to the established in the Qur'an and Sunnah.

A reality that Islam is not a theocracy State within the meaning of the Ministry, but is a State ideology that serves as a mechanism to carry out the laws of the Quran and Sunnah. Fiscal policy is therefore in an Islamic State should be fully in accordance with the principles of law and values of Islam. Principal objectives of the Islamic law are to achieve the well-being of mankind. Well-being of humanity can be achieved when all this law does not discuss economic policy and fiscal, and this is consistent with the subject sifat0sifat Divine, namely:

  • a) Bestowed of good fortune.
  • b) Most gracious
  • c) Most Merciful.
Thus the activities that adds to the expense of interest income Countries should be used to achieve certain economic and social framework of Islamic law in General as set out in the Qur'an and Sunnah.

Stiglitz (1986), suggests that the levy, since ancient times, although the charges in the past with the future is now different. Charges in the past referred to as feudal levie whereas at present referred to as modern taxes. According to Pigou in Mangkoesoebroto, 1993), modern taxes related to the public good. Does it mean to how far society can "forced" to pay the facilities financed from taxes. Pigou's theory was refined by Bowen, Lindhal, and Smuaelson. But in essence argued the same thing i.e. associate Government spending with taxes. That is, through taxes, the Government does not simply raise funds, but to build a public good that can satisfy the community. Thus, there are two dimensions of taxes, namely:

  1. The provision of funds and
  2. Realize the tax burden which reflects community satisfaction of a public good.

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