Redistribution Redistribution means taking income from those with higher incomes and providing income to those with lower incomes. This is done through taxation and expenditure policy. Contents. Apart from the three main types of budget, there are Zero budgeting, Outcome Budget and Gender budgeting. A government uses fiscal instruments of taxation and subsidies with a view of improving the distribution of income and wealth in the economy. Earlier in this module, we considered some of the key government policies that provide support for the poor: the welfare program TANF, the earned income tax credit, SNAP, and Medicaid. It helps to uplift underprivileged sections of society by introducing new policies. Redistribution of income is one of the important objectives of government budget. Allocation of resources is one of the important objectives of government budget. Objectives of a Government Budget: It should be kept in mind that rapid and balanced economic growth with equality and social justice has been the general objective of all our policies and plans. [CBSE 2010] OR Explain ‘redistribution of income’ objective of government budget. Budget is a crucial activity as it shapes economic development and progress of a nation. VIEW SOLUTION. 'Taxation and subsidies' is the key policy instrument used by the government in this context. What are the differences between balance of trade and balance of payments? What are the Different types of Government Budget? They encourage small industries like “Khadi” to flourish by allowing subsidised loans and reduced taxes on raw material, needed for production. Government budget - Government budget - Components of the budget: In the United States the budget for each fiscal year contains detailed information on the outlays intended by the federal government and the receipts expected, including those from trust funds. Explain the role the government can play through the budget in influencing allocation of resources. government can use tax policy and public expenditure as a tool. Government levies high rate of tax on rich people reducing their disposable income and lowers the rate on lower income group. 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. In a mixed economy, the private producers aim towards profit maximisation, while, the government aims towards welfare maximisation. Explain how taxes and government expenditure can be used to influence. The income tax burden is equitably distributed on different people and institutions. Also by producing goods and supply directly. This will spur economic growth. Primarily the budget is divided into 3 types. Capital budget- Just like the former one, Capital revenue is classified into capital receipts and expenditure. It is imposed on the income of a person based on the principle of ability to pay. Task for you – Identify the characteristics of a robust as well as weak budget using the above mentioned objectives. Public finance is the study of the role of the government in the economy. Task for you: Can a strong budget help reduce income inequality? These are financed out of revenue receipts. 2) Private sector of economy usually ignores social welfare. (B) Repayment of loan to World Bank, foreign government, etc. 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). Policies like Deficit budget during deflation and Surplus budget during inflation thrive on bringing stability within the economy. for the coming fiscal or financial year. In the beginning of every year, the Government of India prepares a document and presents it before Lok Sabha. It is essential because it helps to set a goal for future financial planning. (iii) Stabilization Function: Prices are affected because the price of the product is inclusive of tax. tax on fuel) Proportionate – the average rate of tax is constant; Taxes are the first step in the redistribution of income. That is done using transfer payments which are transfers of incomes from one person to another with no production taking place. They achieve so by installing manufacturing facilities in the economically weaker section of the society. Explain the role of government budget in influencing allocation of resources. Government Budget thus plays a crucial role in determining the rapid growth of a nation. Can a strong budget help reduce income inequality? for the coming fiscal or financial year. Through its tax and expenditure policy government affects distribu­tion of personal income of households in a manner which is just and fair. On the other hand, a lower rate of tax is charged on the lower income group to ensure they have sufficient income … An expenditure that neither creates assets nor reduces a liability is categorised as revenue expenditure. Government makes provision to boost the rate of savings and investments made within the economy. The government imposes heavy taxation on a high income groups redistribute it among the people of weaker section in the society. 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