Fiscal Stimulus Effect on Profitability
Lately, people have often heard the expression fiscal stimulus, whether from television, radio, newspapers and magazines. What exactly is meant by this fiscal stimulus? How does it affect your company’s profitability?
According to the Merriam Webster dictionary (1843), the stimulus comes from the Latin word for something that evokes activity, while fiscal means: pertaining to financial problems. Why is fiscal stimulus needed? For fiscal stimulus more quickly affect the components of aggregate demand, so that in the short term, if the right target, will move the real sector, which will ultimately restrain economic growth.
So this fiscal stimulus as well as countercylical withstands the impact of global crisis. History proves that in the 1930s, when there was economic depression, Keynes, British economist, recommends that countries conduct fiscal stimulus to combat the economic depression.
What are the benefits of fiscal stimulus for your company? Fiscal stimulus would directly affect the company’s revenue through:
1. Economic growth / economic growth
When the economic crisis, market mechanisms do not work properly because of low purchasing power and doubts the business world to invest. For this reason, the government is expected to invest and move the wheels of the economy. In this case the purpose of government is to move the economy and improving people’s purchasing power, rather than making profit.
2. Business Tax Rates / taxes paid by companies
Fiscal policy will directly affect the taxes paid by the company. Fiscal stimulus package which is mentioned above is also in the form of decreased tax burden for taxpayers, such as tariff reduction of individual income tax or corporation tax payers and an increase in income is not taxable.
For entrepreneurs, the tax cut is helping to reduce operational costs, so it will be better able to maintain its production capacity, thus reducing the possibility of layoffs. It is based on studies in several developing countries, reducing the tax burden more successful in stimulating growth rather than expansion of government spending.
