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Question
Explain how government budget can be used to influence the distribution of income?
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Solution
The government budgetary policy can influence the distribution of income in the following ways:
- The government ensures productive expenditure to maximise the welfare of the nation with the minimum level of profit.
- The government regularises the activities of the private sector to provide social benefit to the poor.
- A tax is a legally compulsory payment imposed by the government on households and producers. The government imposes taxes on socially unsafe goods such as alcohol and tobacco. Thereby resources will be shifted to the production of socially essential goods
- Subsidies do not reduce the liability of the government and it does not add to the assets of the government. The government also provides subsidies for necessary goods such as wheat, rice and sugar. Thereby the resources are shifted from the production of goods for the rich to the production of goods for the poor
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