Fiscal Definition: Kinds and Examples!

Definition of fiscal – The government uses fiscal as a form of state revenue that is collected from the public, for example obtained from taxes paid by its people. Thus it can be said that this policy is one of the factors that shape a country’s economy.

Does the word fiscal sound familiar to you? So what exactly is fiscal? Check out the explanation of the article below so that you know more about what fiscal is.

Fiscal & Monetary Policy: Theory & Empirical

Fiscal Definition

According to the Big Indonesian Dictionary

Fiscal / fis·cal / a relating to matters of tax or state income.
The word fiscal itself comes from the Latin word fiscus which is the name of someone who has or holds power over finances in ancient Roman times.

Then, in fiscal English it is called fisc which means treasury or regulation of the entry and exit of money in the kingdom.

According to the Financial Services Authority (OJK)

Matters concerning finance, especially with regard to matters of tax or state revenue (fiscal) .

In general

Fiscal is all matters relating to taxes or state income, Fiscal comes from the community and is considered by the government as income that is used for spending various programs. Fiscal is used to produce achievements on national income, production and the economy and is used as a balance device in the economy.

Definition of Fiscal Policy

Fiscal policy is an economic policy carried out by the government in managing state finances. Fiscal policy is limited to sources of state revenue and state expenditure allocations, which are listed in the State Revenue and Expenditure Budget (APBN). The purpose of fiscal policy is to make the country’s economic conditions better

According to the Financial Services Authority (OJK), fiscal policy is a policy on taxation, revenue, accounts payable, and government spending with specific economic goals.

For developed countries, the role of fiscal policy from the government will be even greater in the mechanism for establishing the level of national income. Meanwhile, in developing countries, the role of fiscal policy is more directed at efforts to increase investment through capital formation.

Fiscal Policy Objectives

Broadly speaking, the objective of fiscal policy is to influence the course of the economy with the following objectives:

1. Increasing GDP (country GDP and GDP per capita)

Fiscal policy will affect various lines of the economy, so that every time the government makes changes or updates to fiscal policy, it is expected to be able to stimulate growth in various sectors. In this case, various economic lines are meant, i.e. customs and excise, land and building taxes, income taxes, foreign exchange, imports, tourism, and others.

The more state income grows, the industrial sector will grow as well, so that a country’s economy can continue to experience growth. To measure the level of the country’s economy usually uses the calculation of the Gross Domestic Product (GDP) or commonly called the Gross Domestic Product (GDP). Currently, Indonesia is one of the countries with the largest GDP in Asia, namely 15,434 trillion rupiah in 2020.

The greater the country’s GDP value, the more fiscal policies issued by the government will also affect the level of GDP per capita or per capita income of the people which is also increasing.

2. Expanding Employment and Reducing Unemployment

Unemployment is a problem that is a scourge in a country. In Indonesia, due to the COVID-19 pandemic, the Central Statistics Agency (BPS) noted that the number of unemployed people in Indonesia in the February 2021 period was 8.75 million people.

This number continues to grow and even rises 26.26% compared to the same period last year and the number of poor people in March 2021 reached 27.54 million people. This number has also increased compared to March last year which amounted to 26.42 million people.

As the economy develops, the industrial sector and the business world also develop, the labor market will also be boosted. The greater the economic growth in the country, the demand for labor from the labor-intensive sector will also increase. Therefore, fiscal policy will also affect labor conditions.

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3. Stabilize the prices of goods/ Overcome Inflation

Government policies in regulating inflation will then affect economic and social conditions. When the government decides to increase fuel or food prices, many people will be affected economically, so demand will also decrease.

The response from the public will affect the condition of the oil and gas industry which will then have wider implications for various other economic sectors. Meanwhile, inflation can provide benefits such as creating full employment opportunities.

The problem of unstable inflation has the potential to reduce public trust in the government. Fiscal policy, ideally issued by the government with the aim of fixing prices, for example increasing prices when the value is too low or controlling prices and lowering them when prices are too high.

Through fiscal policy, it is hoped that the level of national income, employment opportunities, the level of national investment, and the distribution of national income will increase and run well.

Introduction to Fiscal Policy

Types of Fiscal Policy

Fiscal policy is basically divided into two kinds, namely according to theory, according to the amount of income and expenditure, and according to its application. Here is the full explanation:

Theoretical Fiscal Policy

1. Functional Fiscal Policy

Functional policy is to improve the quality of the economy at the macro level, the effect of which can only be seen in the long term, such as looking at the indirect effects on national income, especially to increase employment opportunities. For example, by awarding college scholarships, initial financial assistance, and others.

2. Intentional or Planned Fiscal Policy

This policy is a policy in overcoming the economic problems that are being faced by deliberately manipulating the budget, either through changes in taxation or changes in government spending.

The function of this fiscal policy is to deal with certain problems, such as epidemics and economic crises. For example, the state budget allocation for the health sector during a pandemic.

There are three forms of intentional fiscal policy, namely first, making changes to government spending. Second, make changes to the tax collection system. Three, make changes simultaneously either in government management or the tax collection system.

3. Accidental Fiscal Policy

Unintentional fiscal policy is a policy in controlling the speed of the business cycle so that it is not too volatile. This policy protects the economic stability of the non-government sector in the form of decisions or rules, such as fixing maximum retail prices. Types of involuntary fiscal policies, such as proposals, progressive taxes, minimum price policies, and unemployment insurance.

Fiscal Policy of Total Receipts and Expenditures

1. Surplus Fiscal Policy

This fiscal policy is oriented towards the goal of creating a surplus in income, or the value of income that the government records is more than expenditure. The purpose of this surplus fiscal policy is to avoid a spike in the inflation rate.

To achieve this, it can be done by reducing the budget for spending. In addition, it can accelerate a number of revenue components, such as taxation and excise. Intervention on taxation and excise policies will affect the realization of government revenues.

2. Deficit Fiscal Policy

Deficit fiscal policy is the opposite of the type of surplus fiscal policy, this type is oriented towards the goal of making the value of spending greater than the value of income.

Usually, this policy is taken to inject the economy so that it is more vibrant, in the sense that the state government is usually willing to experience a deficit by increasing budget spending so that the economy can be boosted more.

One of the advantages of this policy is overcoming the sluggishness and depression of economic growth. As for the drawback, the country is always in a state of deficit.

3. Balanced Fiscal Policy

Balanced fiscal policy is a policy that makes revenue and spending the same amount. There are positive and negative impacts of this one fiscal policy. On a positive note, the state does not need to borrow a certain amount of funds, both from within the country and abroad. Negatively, economic conditions will deteriorate if the country’s economy is in unfavorable conditions.

4. Dynamic Fiscal Policy

This type of policy is a fiscal policy that is looser in nature or easy to regulate when conditions change significantly. The purpose of this policy is to provide revenue that can be used to meet the growing needs of the government over time.

Application Policy

1. Expansive Fiscal Policy

This type of policy is usually used when the unemployment rate is higher and or during periods of a low business cycle.

The purpose of expansionary fiscal policy is to provide money to the public. That way, people can use the money to carry out economic activities, so that it will stimulate the country’s economic rate.

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2. Contractive Fiscal Policy

Contractive fiscal policy is generally used rarely. The goal is to slow economic growth and stamp out inflation. The long-term impact of inflation can damage people’s living standards due to recession. This policy is carried out by tightening or reducing state spending or spending activities and increasing taxes.

Fiscal Policy Instruments

Practically, financial (fiscal) policy instruments can be divided into several types, such as:

1. State Income

According to Law no. 17 of 2013, State Revenue is money that enters the state treasury. the main sources of state revenue are tax revenues, Non-Tax State Revenues (PNBP) and Grants, from these three sources which are commonly used as active instruments are Tax Revenues.

Tax revenue can be regarded as the main source of state revenue. Tax revenue itself can be categorized into two types, namely Domestic Tax and International Trade Tax. Domestic Tax is divided into several types, namely Income Tax (PPh), Value Added Tax and Sales Tax on Luxury Goods (PPn and PPnBM), Land and Building Tax (PBB).

With an optimal tax ratio measure, it will encourage the country’s development without burdening the economy as a whole. Taxes can also support overall economic growth, the ability of taxes to stimulate the economy is called tax buoyancy.

Another source of state revenue is Non-Tax State Revenue (PNBP). PNBP consists of Revenue from Natural Resources (SDA) which consists of oil and gas natural resources and non-oil and gas natural resources, profit share of State-Owned Enterprises (BUMN) which is specified based on banking and non-banking SOEs, Revenue from Public Service Agencies such as Hospitals , Universities and others as well as other PNBP Revenues such as payment of ticket fines, results of auctions of confiscated goods and so on.

2. State Expenditures

According to Law no. 17 of 2013, State Expenditure is an obligation of the central government which is recognized as a deduction from net worth. there are 2 types of state spending namely Central Government expenditure and Transfer Expenditures to Regions and Village Funds (TKDD).

Central Government Expenditure is generally divided into two categories, namely Expenditure Based on Organization and Expenditure Based on Function. When viewed based on the organization, Central government spending can be subdivided into spending for ministries or institutions and spending on non-ministerial institutions (such as subsidies and debt interest payments).

State spending can be said as a form of government commitment to the economy as a whole. The amount of state spending on the economy is the government’s contribution to growth. Therefore, state spending is expected to be used as an instrument to achieve development goals, such as reducing poverty, reducing inequality, increasing growth and so on.

3. Financing

According to Law no. 17 of 2013, Financing is any revenue that needs to be repaid and/or expenses that will be received back, both in the relevant fiscal year and in subsequent fiscal years. Financing is an implication that occurs when State Expenditure is greater than State Revenue (based on Law no. 2013 article 12 paragraph 3). Financing consists of Debt Financing, Investment Financing, Lenders, Borrowing Obligations, and other financing.

Debt financing can be done by issuing government securities and making loans. Furthermore, loans can come from domestic sources and foreign sources. The government always maintains the quality of its credit in order to obtain optimal debt financing.

Examples of Fiscal Policy in Indonesia

The following are examples of fiscal policies in Indonesia:

1. Tax Incentives During the Covid-19 Pandemic

The government provides relief in the form of eliminating a number of taxes for corporations during the Covid-19 pandemic. This affects the performance of the government’s revenue from taxes, which in terms of the percentage portion in the state budget is quite high. When tax incentives are implemented, it means that the government will give up less and less value of tax revenue to be received. But on the other hand, this step was taken as an effort to keep the economy stable.

When the corporate tax is abolished, the company’s burden will be smaller, so that it can help the company’s activities in carrying out production. In this way, it is hoped that the tax relief stimulus will be able to stimulate the economy so that the effects of the pandemic on the economy are not too severe.

2. Increasing the Budget for Handling Covid-19

The government has also again increased the value of the budget for handling Covid-19 through the 2021 national economic recovery program (PEN) to more than IDR 700 trillion, this is up from around IDR 690 trillion last year.

This large budget certainly sucks up a lot of the government’s budget which was originally allocated for certain programs and then diverted to deal with the pandemic. In addition, this increase in the value of the budget makes the need for funds even higher which, at the same time, the government experiences a decrease in revenue. To finance the budget deficit, the government will be more diligent in withdrawing debt.


Well Readers, that’s an explanation of the meaning of fiscal, to examples of fiscal policy in Indonesia. Hopefully all the discussion that has been explained can be useful for Readers.