question_answer

Explain the 'allocation of resources' objective of Government budget.

Or

Explain the 'redistribution of income, objective of Government budget.

 

Answer:

Allocation of resources is one of the important objectives of government budget. In a mixed economy, the private producers aim towards profit maximization, while, the government aims towards welfare maximization. The private sector always tend to divert resources towards areas of high profit, while, ignoring areas of social welfare. In such a situation, the government through its budgetary policy reallocates resources to maintain a balance between the social objectives of welfare maximization and economic objective of profit maximization. For example, government levies taxes on socially harmful goods such as tobacco and provides subsidies for the socially desirable goods such as food grains.

Or

Redistribution of income is one of the important objectives of government budget. 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. Through its taxation policy, the government taxes the higher income groups in the economy. Purchasing power extracted from the higher income groups in the form of taxes is then transferred to the poor sections of the society through the expenditure policy (subsidies, transfer payments, etc.). 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.