Question

The Government of Delhi has recently increased VAT (value added tax) on petrol and diesel.
How would it impact fiscal deficit of the government and general price level in the state of
Delhi?​

Answer 1

Delhi Government having increased the VAT on petrol and Diesel will reduce the fiscal deficit to some extent. The reason being the revenue is increasing with increase in VAT. Fiscal defecit is the surplus of Gov. expenditure over government revenue. As the Revenue is increasing the fiscal defecit will reduce.

General Price Level will also get affected and increase because the prices of petrol and Diesel are considered to measure the general Price Level and as they are increasing the General Price level will also increase.

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