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?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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