What are the Limitations of Fiscal Policy in Developing Countries?
Inadequate statistical information as regard to the income, expenditure, saving, investment, employment etc. makes it difficult for the public authorities to formulate a rational and effective fiscal policy.
Lack of appreciation and comprehension of the fiscal policy by the general public is another major obstacle in the way of successful fulfilment and implementation of fiscal policy. Unless the people understand the implications of the fiscal policy and fully cooperate with the government in its implementation, it cannot succeed. In developing countries, majority of the people are illiterate and fail to understand the implications of fiscal policy.
Tax Evasion is yet another hindrance. People are not conscious about their responsibilities and role in the developmental programmes. There are cases of large-scale tax evasion with their negative impact on the fiscal policy as well. In the event of tax evasion, the government fails to collect the stipulated amount from the taxes.
Weak Administrative Machinery in less developed countries is a major limitation. Fiscal Policy or for that matter any other policy requires an efficient administrative machinery to formulate and successfully implement the policy.
In less developed countries, different political groups and parties work on different lines and in different directions to achieve their political ends without bothering about the welfare of the people at large. There is political instability and whatever administration is there, it is corrupt and inefficient and is incapable to execute the fiscal policy honestly and effectively.