Question

Explain the following as objectives of government budget:
1. Redistribution of income
2. Economic growth​

Answer 1

2.Economic Growth implies a sustainable increase in real GDP of an economy, i.e. an increase in volume of goods and services produced in an economy. Budget can be an effective tool to ensure the economic growth in a country.

(i) If the government provides tax rebates and other incentives for productive ventures and projects, it can stimulate savings and Investments in an economy.

(ii) Spending on infrastructure of an economy enhances the production activity in different sectors of an economy. Government expenditure is a major factor that generates demand for different types of goods and services in an economy which induces growth in private sector too.

However, before planning such expenditure, rebates and subsidies government should check the rate of inflation and tax rates. Also there may be a risk of debt trap if loans are too high to finance the expenditure.

1.Through its budget government uses fiscal instruments of taxation and subsidies with a view of improving the distribution of income and wealth in the economy. A government reduces the inequality in the distribution of income and wealth by imposing taxes on the rich and giving subsidies to the poor and spending more on the welfare of the poor. It will reduce income of the rich and raises the living standard of the poor. Thus, it leads to equitable distribution of income. Expenditure on special anti poverty and employment schemes and public distribution system may increase the living standard of the poor