Role of Fiscal Policy in Developing Countries:

- Fiscal policy plays a crucial role in developing countries by influencing the overall economic activity through government spending and taxation.
- It helps in achieving economic stability, promoting growth, and reducing poverty by directing resources towards key sectors.

Compensatory Fiscal Policy:

- Compensatory fiscal policy is a tool used to control cyclical economic fluctuations by adjusting government spending and taxation in response to changes in the economic cycle.
- During an economic downturn, the government can increase spending or reduce taxes to stimulate demand and boost economic activity.
- Conversely, during an economic boom, the government can decrease spending or increase taxes to cool down the economy and prevent overheating.

Device for Controlling Cyclical Economic Fluctuation:

- Compensatory fiscal policy helps in smoothing out the business cycle by offsetting fluctuations in private sector demand.
- By injecting stimulus or restraint into the economy, the government can counteract the effects of economic shocks and stabilize growth.
- This policy tool is especially important in developing countries where economic volatility is more pronounced due to factors like external shocks, structural weaknesses, and limited fiscal capacity.

In conclusion, fiscal policy plays a vital role in developing countries by promoting economic stability and growth. Compensatory fiscal policy serves as a valuable device for controlling cyclical economic fluctuations and ensuring sustainable development in these nations.