Page 22 - CAPE Caribbean Studies Study Guide Sample_Neat

2.7 Factors that promote or hinder

development V: government policies

Learning outcomes Types of government policy

On completion of this section you In the Caribbean, government policies are formulated with the aim of
should be able to: ensuring that resources are used efficiently and that different sectors of the
economy receive an adequate part of the national budget in order to manage
■ identify types of government their affairs. There are four main types of policy: distributive, redistributive,
policies.
regulatory and constituent. Policy-making can be influenced by politicians,
■ assess how the policies promote trade unions, professionals and public opinion. They impact the lives of all
or hinder development. people in a society. They are not laws, but can lead to the creation of laws.

There are four macroeconomic objectives that the government seeks
KEY TERM to achieve and these include economic growth, stability of prices or
low inflation rates, a favourable balance of payments position and full
Balance of payment: this is a employment. A favourable balance of payments occurs when exports exceed
measure of a country’s imports imports.
and exports, including goods and
services, receipts and payments, Policies that promote development
income and expenditure.
The government may use a fiscal policy of increased taxation to gain revenue,
and the revenue can be used to improve infrastructure and further develop the
Did you know? country. Also, if taxes are imposed on undesirable or demerit goods such as
alcohol and cigarettes, it may dissuade consumers from using those products
In many cases distributive policies because of the higher prices.
are designed to affect one specific
group in society. A redistributive To stimulate economic growth or attract investors, the government may
policy is one where the government provide incentives such as tax holidays to businesses. The government may
attempts to redistribute income also provide grants and subsidies to businesses and the agricultural sector
to citizens. Regulatory policies to increase production. If businesses have a lower cost of production due to
are normally used to control the subsidies, they will be able to increase production, creating more jobs.
activities of private businesses. Social policy can promote development through the provision of equal
Constituent policies are passed by opportunities, social intervention and education about the values of various
legislative bodies. societal institutions. This process can help create a public workforce which

better understands its responsibilities in the promotion of economic, human
KEY TERMS and sustainable development.
Policies that hinder development
Fiscal policy: the use of
government expenditure and It can be argued that government welfare policies are a strain on the economy.
taxation to bring about some Pension plans, unemployment relief and grants for poorer people have created
desired effect in an economy. a so-called culture of dependency, whereby people are less willing to work and
Social policy: the framing of rely more on government handouts.
programmes and laws supporting
Governments tend to lose out on revenue from taxes when multinational
individual rights, responsibilities,
corporations are exempted from taxes or given tax holidays. A lot of MNCs
freedoms and development.
leave the country as soon as their contracts are up and thus the country loses
Tax holiday: a temporary significantly.
reduction or relaxation of
Many developing nations are vulnerable to the ill effects of structural
taxes. It is normally seen as an
adjustment policies implemented by the International Monetary Fund. When
incentive by government to
international lending agencies provide loans to countries in debt, there are
encourage businesses to invest in
certain conditions that must be adhered to upon acquisition of the loans.
an economy.
In the 1980s, during a worldwide recession, many Caribbean territories
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