Objectives of Government Budget

Objectives of government budget play a vital role in elevating the welfare of the people. In order to do that the government interference in the economy in the following ways.

Distribution Function of the Government Budget

Government furnishes certain commodities and services which cannot be given by the market mechanism i.e. by the interchange between individual customers and manufacturers. Instances of such commodities are national roads, defence, government administration etc., which are known as public goods.

To comprehend why public goods need to be furnished by the government, we must understand the difference between private commodities such as cars, food items, clothes etc., and public goods. There are 2 major differences. The benefits of public goods are obtainable to all and are not only confined to one particular customer.

Reallocation Function of the Government Budget

The government sector influences the personal disposable earning of households by transferring the money and accumulating taxes. It is via this, that the government can change the allocation of income and bring about an allocation that is contemplated as ‘fair’ by society. This is called redistribution or reallocation function.

Stabilisation Function of the Government Budget

The government may want precise fluctuations in terms of income and employment. The all inclusive level of employment and prices in the economy relies upon the level of average demand which depends on the spending decisions of many private economic agents apart from the government. These decisions, in turn, rely upon many factors such as income and credit obtainability. In any period, the degree of demand may not be sufficient for complete utilisation of labour and other resources of the economy. Wages and cost prices do not fall below a certain level, employment definitely cannot be brought back to the earlier level instinctively. The government needs to interfere to increase the aggregate demand. There may be times when demand increases obtainable output under conditions of high employment and may give rise to inflation. In such circumstances, restrictive conditions may be required to reduce demand. The involvement of the government whether to expand demand or decrease it comprises the stabilisation function.

The above mentioned is the concept that is explained in detail about the Objectives of Government Budget for the class 12 students. To know more, stay tuned to BYJU’S.

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