Government budget and economy Flashcards
(28 cards)
An economy in which there is involvement of both private sector and government is called_____
Mixed economy
Article ____ states that it is a constitutional requirement in India to present before the parliament a statement of estimated receipts and expenditures
Article 112
A financial year runs from ____ to ___
1 April - 31st March
The _____ contains the budget document of the government.
Annual financial statement
Name the two kinds of accounts and what they include.
1) Revenue account ( revenue budget ): things that relate to the current financial year
2) Capital account (capital budget ): the assets and liabilities of the government
(*revenue= funds collected for the current financial years expenditure )
Explain why public goods are non-excludable.
Everyone pays for them and no one can be excluded from receiving these services
Explain public provision and public production
public provision: financed by the government
public production: goods produced directly by the government
Explain personal income and personal disposable income.
personal income: income out of private income that reaches houses
personal disposable income: income that can be spent
Name the three main objectives of government budget.
1) Distribution function:
- reducing inequalities in income and wealth
- imposing taxes on the rich (revenue) and providing subsidies for the poor ( exp. )
2) Allocation function:
- heavily taxing harmful products and subsidizing socially useful products
- intervening in areas that private sectors don’t deal with, like water supply and sanitation.
- goals of profit maximization and social welfare
3) Stabilization function:
- free market; forces of demand and supply cause trade cycles also known as business cycles
- periods of recession, inflation, deflation and boom and recovery
- budget is a fiscal tool used to correct this
- INFLATION: reduce public exp, increase revenue; taxes ( surplus budget )
- DEFLATION: increase public exp, reduce revenue
What are the two components of budget ?
1) budget receipts
2) budget expenditure
What is a budget receipt ?
The estimated money receipts from all sources during a financial year
What are the two components of budget receipts ?
revenue receipts and capital receipts
Explain revenue receipts
the estimated money receipts during a fiscal year that have no impact on the assets and liabilities of the government.
eg:
- not affecting liabilities: tax
- not affecting assets: fees, fines, grants
What are the two components of revenue receipts ?
tax receipts: - from direct and indirect tax - legally compulsory - no direct benefit non- tax receipts: - sources other than tax - not legally compulsory - direct benefit from services provided by government
Explain tax and non-tax receipts.
1) tax receipts: receipts from all direct and indirect tax ( income tax, corp. tax, GST )
2) non tax receipts: receipts from all other sources other than tax ( fees, fines, grants )
What are the main features of tax ?
1) it is compulsory
2) legally enforced
3) no correspondence to tax and social benefits
4) revenue is spent for public welfare
5) personal responsibility of the person
What are the two components of tax receipts ?
Direct tax: - onus to pay is on the person - not transferable - progressive in nature - does not affect market price of product - ( income tax, wealth tax, etc. ) Indirect tax: - paid to the government by one person but onus is on another person - is transferable - is regressive in nature - does affect market price of product - ( GST)
Name the items included in non-tax receipts.
1) fees: payment for service provided by the government
2) license: permission for something
3) escheat: income from property without a legal heir goes to govt.
4) special assessment: payment made by owners of properties to govt. when value of land appreciates
5) fines and penalties
6) gifts and grants
7) income from public enterprises
8) interest on loans
9) forfeiture of bonds
What is a capital receipt ?
estimated money receipts which affect the asset and liability situation of the govt.
- affecting liability: borrowings
- affecting assets: disinvestment, recovery of loans
Name and explain the components of capital receipts.
1) borrowings
- causes liability
- debt creating capital receipt
- govt. borrows from general public, RBI, IMF, foreign institutions
2) recovery of loans:
- debtors are assets to the govt.
- recovery of loans depreciates the assets
- non-debt creating capital receipts
3) Disinvestment:
- selling of public enterprises to private enterprises
- also known as privatization
- reduction in assets of govt.
- non-debt creating capital receipt
What is budget expenditure ?
The estimated expenditure during a fiscal year on development and non development/ plan and non-plan programmes.
Explain revenue expenditure and capital expenditure.
Revenue expenditure:
- estimated expenditure of govt. that does not affect asset or liability status of govt.
- recurring in nature
- old age pensions, scholarships, salaries subsidies
Capital expenditure:
- estimated expenditure of govt. that does affect asset or liability status of govt.
- non- recurring in nature
- expenditure on construction, purchase of shares, repayment of loans
Define budget deficit + formula.
The excess of total expenditure over total revenue + borrowings is budget deficit.
budget deficit = total expenditure + total receipts + borrowings
What is revenue deficit ?
- excess of total revenue expenditure over total revenue receipts
- Revenue deficit = revenue expenditure - revenue receipts
