Question

What is the difference between revenue expenditure and capital expenditure? Explain how taxes and government expenditure can be used to influence distribution of income in the society.

Answer 1

Basis of Difference	Capital Expenditure	Revenue Expenditure
Meaning	This refers to that government expenditure, which causes reduction in the government liabilities as well as creates assets for the government.	This refers to the government expenditure which does not cause any reduction in government liabilities and also does not create assets for the government.
Examples	Expenditure on purchasing shares, bonds, etc.	Expenditure on salaries, pensions, subsidies, interest payments, etc.

The government through its budgetary policy attempts to promote fair and right distribution of income in a society. This is done through taxation and expenditure policy. On one hand, through its taxation policy, the government taxes the higher income group and on the other hand, through the expenditure policy (subsidies, transfer payments, etc.), it transfers the purchasing power in the hands of the poor sections of society. With the help of these policies, the government aims at fair distribution of income in the society.