Fiscal policy and capital formation

Fiscal policy and capital formation:

Fiscal policy like tariffs, taxes, transfer payments, rebate and subsidies are predicted to spur long run economic growth via raised capital formation. Capital formation is considered a significant determinant of economic growth. Economic theory states us that the optimal quantity of capital formation serves a helpful key to economic growth in developing economies. At similar time, the economic distortions brought about by lack of sufficient fiscal incentives can cause capital formation to drop short of the socially optimal level.

 

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