explain the 'redistribution of income' objective of government budget

Even distribution of wealth and social welfare remains the main objective of budgetary policy. The private sector always tend to divert resources towards areas of high profit, while, ignoring areas of social welfare. 1. It helps to uplift underprivileged sections of society by introducing new policies. Minimize inequalities in income and wealth –In an economic system, income and wealth inequality is an integral part. govt can reduce the … Through its tax and expenditure policy government affects distribu­tion of personal income of households in a manner which is just and fair. Before taxes and social spending the income of the richest 10% in South Africa is more than 1000 times bigger than the poorest 10%. OR Explain how the government budget can help in a fair distribution of income in the economy. through heavy taxes and encourages the use of ‘Khaki products’ by providing subsidies. Redistribution Redistribution means taking income from those with higher incomes and providing income to those with lower incomes. Hence, the impact and incidence of taxes are on different persons. MEDIUM. 6. How can a government budget be helpful in altering distribution of income in an economy? It is a projection or estimation of financial trends and its outcome, prepared solely depending on the previous years’ data. Budgetary policies are hence introduced to infuse enough recourse in different public sectors. Primarily the budget is divided into 3 types. It brings economic stability in a country by cutting down wasteful expenses. Inflation also creates uncertainty. The purpose of such expenditure is not to build up any capital asset but to ensure normal functioning of government machinery. Gender budget aims at gender equality, specifically by introducing new schemes and policies to empower women. The government through its budgetary policy attempts to promote fair and right distribution of income in an economy. This is done through taxation and expenditure policy. If you want to learn more, check out our website today for more information about economics, finance and business study related topics. To achieve this objective, government uses fiscal instruments of taxation and subsidies. In such a situation, the government through the budgetary policy, aims to reallocate resources in accordance with the economic (profit maximisation) and social (public welfare) priorities of the country. A high level of taxation is necessary in a welfare State to fulfill its obligations. No decline in government liabilities and does not create assets for the government. Question Bank Solutions 15386. A 2011 study by the Congressional Budget Office (CBO) found that the top earning 1% of households increased their income by about 275% after federal taxes and income transfers over a period between 1979 and 2007, compared to a gain of just under 40% for the 60% in the middle of America’s income distribution. How can government help through government budget, in this regard? Governments around the world have the following objectives: 1. View Answer. Task for you – Identify the characteristics of a robust as well as weak budget using the above mentioned objectives. Time Tables 18. Explain the ‘redistribution of income’ objective of Government budget. Simply put, an expenditure which neither creates assets nor reduces liability is called Revenue Expenditure, i.e., Salaries of employees, interest payment on post debt, subsidies, pension, etc. If government transfers have helped the poor, as advertised, by redistributing income to them, then this should show up in a more equal distribution of income. An expenditure that neither creates assets nor reduces a liability is categorised as revenue expenditure. For example, if you earned $2000 and spend $1800 on all your purchases then your propensity to consume is at 90%. The economic value that is reflected in the rise in tax rate for higher income group is the ‘equality and social welfare’. Difference between Revenue Expenditure and Capital Expenditure. Broadly, any expenditure that does not lead to any creation of assets or reduction in liability is treated as revenue expenditure. (Delhi 2011; All India 2010) Ans. [CBSE2011, A/2011] OR Reduction in income inequalities raises welfare of the people. It refers to the excess of total estimated budget expenditure (Revenue Expenditure + Capital Expenditure) over total budget recipients, excluding borrowing. Explain the ‘economic stability’ objective of a government budget. Through a budget, the government endeavours to equally allocate resources and wealth. Government levies high rate of tax on rich people reducing their disposable income and lowers the rate on lower income group. (ii) Redistribution of income and wealth (iii) Economic Stability (iv) Management of public enterprises. Repeaters, Vedantu (A)Redistribution of income and wealth: It is one of the most important objective of the government budget. These refer to the phases of recession, depression, recovery and boom in the economy. Budget is a financial statement showing the expected receipt and expenditure of Govt. Pro Subscription, JEE Redistribution of income is one of the important objectives of government budget. These receipts are again classified into two segments: tax revenue (income, excise, corporate, custom taxes) and non-tax revenue (income and profits earned by government other than taxes). 232, Block C-3, Janakpuri, New Delhi, 2) Private sector of economy usually ignores social welfare. In this case, imposed taxes surpass the expenses. my school teacher always chants I hope you will provide answer in points minimum 3 ) - Economics - Government Budget and the Economy On the other hand, a lower rate of tax is charged on the lower income group to ensure they have sufficient income … 2) Private sector of economy usually ignores social welfare. As such it taxes the rich and spends for the schemes which benefit more the poor. The objective of equitable distribution of income might come in conflict with the objectives of economic efficiency and economic growth. Such expenditure is incurred on long period development programmes, real capital assets and financial assets. Thereby the tax burden falls more on the rich than on the poor. Many of the fiscal policies are embodied in the budget and such policies tend to direct the economic activities in the country. Government Budget thus plays a crucial role in determining the rapid growth of a nation. Answer the following question in 4 sentences. The Government tries to bring economic equality of society. Within developed countries income inequality has become a widely popular issue that has dominated the debate stage for the past few years. Explain. What is the difference between revenue expenditure and capital expenditure? Fiscal instruments like subsidies, taxations, etc. Explain how taxes and government expenditure can be used to influence. A government budget is an annual financial statement which outlines the estimated government expenditure and expected government receipts or revenues for the forthcoming fiscal year. It is a short period expenditure and recurring in nature which is incurred every year (as against capital expenditure which is long period expenditure and non-recurring in nature). Redistribution of income- To close the income gap between rich and poor, several budgetary schemes are launched from the government's end. (ii) Capital Expenditure. in order to raise their disposable income. (iii) Stabilization Function: Ans. What are the Different types of Government Budget? Pro Lite, NEET Thus, with the help of taxation and expenditure policy in the budget, the government aims at redistribution of income such that a fair and just distribution of income is achieved in the society. Financing Public Enterprises- Several public sector industries are established for the social welfare of the public. 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explain the 'redistribution of income' objective of government budget 2021