A Fiscal Policy is “a government’s taxation policy. Tax enables the government to raise revenue in order to provide public goods which would not otherwise be provided by the market, such as a police force, national defense, and so on” (“Fiscal Policy”). A fiscal policy is used to keep the national economy in a good balance. It’s also a tool to face the big problems in the economy like inflation (“Fiscal Policy”). Every country has its own fiscal policy. Both the United States and the Scandinavian countries use effective fiscal policies. But there are many differences between them. Egypt has a fiscal policy that depends mostly on direct taxes. Egypt must adopt a new fiscal policy that has some features of the fiscal policies in the Scandinavian countries like focusing on indirect taxes. But the high levels of corruption will not help Egypt to use “administrative federalism” because it is a form of delegation (Rattsø 1).
A Brief Description of the Fiscal Policy of the United States
Tax System: The United States depends mainly on the direct taxes. Most of those taxes come from the “Individuals’ Incomes”. Those taxes consisted about 48% of the United States’ budget in 1998. Also, a big source of funds is the “Social Security taxes” (“Fiscal Policy”). 10% of the taxes in the budget are “taxes on corporate profits” (“Monetary and Fiscal Policy”). The tax prices in the United States are considered high if compared to the tax prices in other developed countries (Croitoru).
Public Expenditure: The United States’ government spends on the “social security system” more than anything else. In 1998, 23% of the public expenditures were spent on “payments of monthly benefits to families of retired and disabled workers” (“Fiscal Policy”). Defense is an important part of the federal budget. It consisted 16% of expenses in the federal budget of the year 1998.The federal government spends a big part of its expenditures on the interests on federal debt (“Fiscal Policy”).
Government Borrowing: “Subnational governments” depend on the federal government for getting loans. Many times, the subnational governments can go too far with borrowing and get in trouble. In this case, it looks like the subnational government faces the threat of bankruptcy. But that’s not true because “no governments go through bankruptcy proceedings” (Wildasin 3-4). The federal government can find other ways to borrow money, but not from subnational governments (“Fiscal Policy”).
This fiscal policy is useful for economic growth. It depends on taxes on individuals’ incomes and that ensures tax revenues. But the U.S. government spends too much money on defense. This money can be used to support other sectors in the economy.
A Brief Description of the Fiscal Policy of the Scandinavian Countries
Tax System: The Scandinavian countries use the strategy of lowering direct tax rates (like corporate rates) to attract investments, and depend more on indirect taxes (Croitoru). Tax rates in Scandinavian countries are the highest if compared to other tax rates in “O.E.C.D.” countries. “In the Scandinavian countries, the average direct tax rate, the average total tax rate, and the marginal tax rates are key factors in the decision to work in the informal economy” (“Tax System” 9).
Public Expenditure: The fiscal policy depends on “centralized financing and redistributive welfare services”. Scandinavian countries’ budgets are similar to the federal budgets in the United States (Rattsø 1). The Scandinavian countries spend the biggest part of tax revenue on “welfare services” (like education and healthcare). When transferring money for public expenditures, the central government transfers the funds to the local governments (Schroeder and Smoke 39).
Government Borrowing: Scandinavian countries are not very different from the United States. The central government lends the local governments to “finance investment spending” (Rattsø 14).
This fiscal policy is useful. The high tax rates ensure revenues. Also lowering tax rates attracts investments and supports the economy. High income tax rates can affect the performance of the Scandinavian labor in a negative way (Cooper 1).
A Brief Description of the Tax System in Egypt
The main source of funds is direct taxes. Most of those taxes are corporate tax (the most important tax) and income tax (Gayesa and Abdel Hady 11). Income tax rates are higher with higher levels of income (Gayesa, Abdel Hady and El Hefnawi 30). This fiscal system is not the most suitable one for Egypt because raising income taxes needs a high level of transparency (Gayesa, Abdel Hady and El Hefnawi 13). In the “2006 Transparency International Corruption Perceptions Index”, Egypt’s rank was 110 (“Corruption”). This means that Egypt is not totally qualified to follow such fiscal policy. It’s better for Egypt to focus on indirect taxes.
The United States and Scandinavian countries are not similar in their fiscal policies. For revenues, the United States depends primarily on direct taxes but Scandinavian countries are more dependent on indirect taxes. In expenditures, the United States cares more about defense but Scandinavian countries care more about welfare services. The Egyptian Fiscal policy depends mainly on direct taxes. But it is not the best solution. Egypt must depend more on indirect taxes.
Cooper, Sara. Scandinavian Irony: Socialism Meets Liberalization. Foundation for Economic Education. 2009. Web.
Croitoru, Cristina. A Tax Paradox. Business Today Online Journal. Foundation for Student Communication, Inc. 2009. Web.
Designing a Tax System for Micro and Small Businesses: Guide for Practitioners.
Washington D.C.: International Finance Corporation. The World Bank Group. 2009. Web.
“Fiscal Policy.” Answers.com. 2009. Web.
Gayesa, Nasr M., Abdel Rasoul Abdel Hady and Shawki El Hefnawi. Advanced Tax Accounting: Contemporary Taxing Problems. Egypt: U of Tanta, 2007.
Gayesa, Nasr M., Abdel Rasoul Abdel Hady. Professional Studies in Tax Accounting. Egypt: U of Tanta, 2008.
“Monetary and Fiscal Policy.” 2009. Web.
Ragan, Kelly. Fiscal Policy and the Family: Explaining Labor Supply in a Model with Household Production. The University of Chicago: Department of Economics. 2009. Web.
“Revenue-neutral rate for GST.” The Economic Times. 2007. Bennett Coleman & Co. Ltd. 2009. Web.
Rattsø, Jørn. Chapter 9: Vertical Imbalance and Fiscal Behavior in a Welfare State: Norway. The Home Page of David Wildasin. 2009. Web.
Schroeder, Larry, and Paul Smoke. Intergovernmental Fiscal Transfers: Concepts, International Practice, and Policy Issues. Asian Development Bank (ADB). 2009. Web.
“The 2006 Transparency International Corruption Perceptions Index.” Infoplease.com. 2005. HighBeam Research, LLC. Web.
Wildasin, David. The Institutions of Federalism: Toward an Analytical Framework. 2009. Web.