Question

    The government of a developing country is facing a high

    fiscal deficit due to increased spending on social welfare programs and infrastructure projects. The government is considering implementing fiscal consolidation measures to reduce the deficit. Which of the following fiscal consolidation measures is likely to have the most immediate impact on reducing the fiscal deficit?
    A Increasing taxes on luxury goods. Correct Answer Incorrect Answer
    B Reducing subsidies on essential commodities. Correct Answer Incorrect Answer
    C Implementing a long-term infrastructure development plan. Correct Answer Incorrect Answer
    D Introducing a new social welfare program. Correct Answer Incorrect Answer
    E Increasing government spending on education. Correct Answer Incorrect Answer

    Solution

    Reducing subsidies on essential commodities will directly reduce government expenditure, leading to an immediate reduction in the fiscal deficit. While increasing taxes on luxury goods can also generate revenue, it may take longer to have a significant impact on the deficit.

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