Prelims High-Yield Explanations & Traps

• role
• to first understand
• role in increasing the welfare of
• component
• component of revenue
• element
• policy instrument which aim at increasing welfare
• fiscal measures
• that the borrowing requirement of the
• that taxes lower disposable income and consumption
• that proportional taxes not
• that these fiscal policy instruments can be varied to offset the
• that the economy’s flow of savings is not really
• that larger deficits do not always
• features of public goods are – they are non-rivalrous in that
• role in determining expenditure policies
• instituional mechanism to ensure fiscal prudence and support
• that they are financed through the budget and can be used without any direct payment
• that in future its earnings from that asset, will disappear
• that the government will have to borrow not only to finance its investment but also its consumption requirements

Essential Definitions & Formulas

An economy in which there is both the private sector and the Government

known as a mixed economy.

MEANING AND ITS COMPONENTS There

a constitutional requirement in India (Article 112) to present before the Parliament a statement of estimated receipts and expenditures of the government in respect of every financial year which runs from 1 April to 31 March.

There

a need therefore to have two accounts- those that relate to the current financial year only are included in the revenue account (also called revenue budget) and those that concern the assets and liabilities of the government into the capital account (also called capital budget).

It

said that this person’s consumption stands in rival relationship to the consumption of others.

That

why public goods are called non-excludable.

Consumers will not voluntarily pay for what they can get for free and for which there

no exclusive title to the property being enjoyed.

The link between the producer and consumer which occurs through the payment process

broken and the government must step in to provide for such goods.

Public provision

that they are financed through the budget and can be used without any direct payment.

When goods are produced directly by the government it

called public production.

It is through this that the government can change the distribution of income and bring about a distribution that

considered ‘fair’ by society.

This

the redistribution function.

The redistribution objective

sought to be achieved through progressive income taxation, in which higher the income, higher is the tax rate.

Classification of Expenditure Revenue Expenditure Revenue Expenditure

expenditure incurred for purposes other than the creation of physical or financial assets of the central government.

This

shown in item 6 on Table 5.

Capital expenditure

also categorised as plan and non-plan in the budget documents.

The budget

not merely a statement of receipts and expenditures.

This

known as a balanced budget.

Gender budgeting

an exercise to translate the stated gender commitments of the government into budgetary commitments, involving special initiatives for empowering women and examination of the utilisation of resources allocated for women and the impact of public expenditure and policies of the government on women.

This

when the government runs a budget deficit.

This situation

that the government will have to borrow not only to finance its investment but also its consumption requirements.

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