Explain allocation function of government budget
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The allocation function is that part of government tax and expenditure policy which is concerned with influencing the provision of goods and services in the economy. This means creating conditions to promote competition among producers, as well as the welfare of consumers.
It is imposed on the income of a person based on the principle of ability to pay. The income tax burden is equitably distributed on different people and institutions. Thereby the tax burden falls more on the rich than on the poor.
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Allocation by the Government basically denoted to the Resource allocation which is required for the proper functioning of the economy.
It is through this mechanism that the Government ensure competition in the country sand helps in boosting the Gross Domestic Product(GDP)
Following are the allocation function of Government-
- The Government budget is divided into Receipt and Expenditure. In the receipt part, all the taxes and mainly the income sources of Government is listed whereas in Expenditure part, all the Expenses of the Government is to be noted.
- Then comes the division between the Public and Private sectors of the economy.
Public sector is owned by the Government or they have at least 51% stack of the particular company.
Private sector is fully owned by the Individual other than part of Government.
Government by means of allocation also assign funds to these public sector units so that people will get the basic needs fulfilled at the minimal expense.
On the other hand, Government make the rules and regulations flexible so that the Private sector companies can work in country and generate more employment opportunities.
- Through allocation, Government can discourage the production of Harmful goods in the economy. They can also impose 'Sin Tax' so that the production of alcoholic and cancerous products can be cut.
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