Public Finance and Redistribution Measures

Questions and Answers

What is the primary purpose of proceeds from progressive taxes?

To fund international trade agreements

To finance public services benefiting low-income households (correct)

To stabilize the economy during recessions

To reduce inflation rates

Which element is NOT part of macroeconomic stability?

Total spending matching total output

High levels of national debt (correct)

Full employment of labor resources

Low and stable inflation

What does the stabilization function of the government primarily aim to address?

Eliminate macroeconomic fluctuations (correct)

Increase exports through tariffs

Enhance income inequality

Reduce government intervention in markets

According to the Keynesian proposition, what is necessary for a market economy?

Deliberate stabilization policies Signup and view all the answers

Which of the following scenarios demonstrates the 'contagion effect' in stabilization issues?

A recession in one country impacting others through trade Signup and view all the answers

Which measure is typically implemented to support families below the poverty line?

Monetary aid and support in kind Signup and view all the answers

What is one challenge associated with the stabilizing role of fiscal policy?

Managing the balance between equity and efficiency Signup and view all the answers

What can prolonged business cycles lead to in an economy?

Widespread economic instability Signup and view all the answers

What are the three broad pillars of debt management strategy?

Low cost of borrowing, risk mitigation, market development Signup and view all the answers

Which institution is responsible for managing internal debt?

Internal Debt Management Department of RBI Signup and view all the answers

What is the primary objective of the Fiscal Responsibility and Budget Management (FRBM) Act?

To provide a legislative framework for reducing the deficit Signup and view all the answers

In which scenario is a budget categorized as a surplus budget?

When receipts exceed expenditures Signup and view all the answers

Which of the following best describes a balanced budget?

Revenues are equal to expenditures Signup and view all the answers

What does risk mitigation in debt management primarily aim to achieve?

Minimize potential financial losses Signup and view all the answers

Which department is responsible for external debt management?

Department of Economic Affairs in Ministry of Finance Signup and view all the answers

What are capital receipts defined as in the context of government finances?

Receipts leading to reduction in assets or increase in liabilities Signup and view all the answers

What are expenditures charged on the Consolidated Fund of India?

Emoluments and allowances of the President and judges Signup and view all the answers

What is the purpose of presenting a Vote on Account in an election year?

To allow provisional expenditure for a few months Signup and view all the answers

Which two boards oversee the collection of direct and indirect taxes in India?

Central Board of Direct Taxes (CBDT) and Central Board of Indirect Taxes (CBIC) Signup and view all the answers

How many days does the Parliament have to pass the Finance Bill after its introduction?

75 days Signup and view all the answers

Which of the following is NOT a source of revenue managed by the Department of Revenue?

Corporate social responsibility contributions Signup and view all the answers

Which statement about the Consolidated Fund of India is correct?

It includes funds for the emoluments of constitutional authorities. Signup and view all the answers

What distinguishes the expenditures charged on the Consolidated Fund from other expenditures?

They do not require parliamentary approval each time. Signup and view all the answers

What is typically included in the Annual Financial Statement presented to Parliament?

Projected expenditures and revenue for the full year Signup and view all the answers

What does the public account represent according to Article 266(1) of the Constitution of India?

Fund flows where the government acts as a banker Signup and view all the answers

Which of the following is NOT an objective of fiscal policy?

Influencing monetary policy directly Signup and view all the answers

Which aspect does discretionary fiscal policy focus on?

Deliberate government actions to alter spending and taxes Signup and view all the answers

Why might an economy at full-employment not require fiscal policy intervention?

Increased government action can lead to inflation Signup and view all the answers

Which example is typically associated with a public account?

Provident Funds Signup and view all the answers

Which of the following best describes the difference between fiscal policy and monetary policy?

Fiscal policy involves government spending, taxation, and borrowing, while monetary policy relates to money supply control Signup and view all the answers

Which statement is true regarding the importance of fiscal policy objectives?

The order of priority may change depending on the country and circumstances Signup and view all the answers

What is NOT a characteristic of discretionary fiscal policy?

It adjusts automatically during economic fluctuations Signup and view all the answers

Which of the following aspects is NOT part of the stabilization function of an economy?

Technological advancements Signup and view all the answers

What is one of the primary methods through which monetary policy operates?

Controlling interest rates Signup and view all the answers

Which government level did Richard Musgrave suggest should be responsible for economic stabilization?

Federal government Signup and view all the answers

In the case of conflicting legislation in the concurrent list, which law prevails?

The law passed by the centre Signup and view all the answers

Which list contains items exclusively legislated by the state legislative assemblies?

State list Signup and view all the answers

How are the powers of the union and state governments classified under Article 246 of the Constitution?

Three lists Signup and view all the answers

What is one of the responsibilities of state governments according to fiscal federalism?

Resource allocation Signup and view all the answers

Which of the following statements about India’s governmental structure is incorrect?

The central government has limited revenue-raising powers. Signup and view all the answers

Study Notes

Redistribution Measures

Proceeds from progressive taxes finance public services, especially aiding low-income households.
Employment reservations exist to enhance job accessibility for disadvantaged groups.
Monetary aid and material assistance are provided to families below the poverty line.
Special schemes target backward regions and vulnerable populations.

Efficiency and Equity

Redistribution measures should minimize efficiency costs while balancing equity and efficiency objectives.

Stabilization Function

Macroeconomic stability involves matching output with production capacity, balancing total spending with total output, ensuring full employment, and maintaining low and stable inflation.
Government's stabilization function stems from Keynesian economics, which posits the need for deliberate policies to achieve full employment and price stability.
Business cycles are inherent in economies, and market mechanisms alone cannot prevent prolonged downturns.
Increased international interdependence complicates stabilization due to potential contagion effects.
Fiscal policy's stabilization function addresses macroeconomic fluctuations linked to:
- Labor employment and capital utilization.
- Overall output and income levels.
- General price levels.
- Balance of international payments.
- Economic growth rates.
Monetary policy regulates money supply and interest rates, while fiscal policy influences through spending and taxation.

Fiscal Federalism

Richard Musgrave introduced fiscal federalism, advocating for economic stabilization and income redistribution by the central government and resource allocation by state and local governments.
India comprises 28 states and 8 union territories, with powers divided between central and state governments.
Article 246 of the Constitution outlines the union list, state list, and concurrent list for legislative powers. In case of conflict, central laws take precedence.
The central government holds greater revenue-raising powers.

Consolidated Fund of India

Includes the Contingency Fund of India and the Public Account.
Certain expenditures, such as emoluments of key constitutional figures, are charged to the Consolidated Fund and do not require parliamentary vote.
Budgets in election years may be presented twice for a Vote on Account and the Annual Financial Statement.
The Finance Bill must be approved by Parliament within 75 days of introduction.

Sources of Revenue

The Ministry of Finance's Department of Revenue oversees direct and indirect union taxes.
It manages tax matters through:
- Central Board of Direct Taxes (CBDT) for direct taxes.
- Central Board of Indirect Taxes and Customs (CBIC) for indirect taxes like GST and customs duties.

Public Debt Management

Involves strategy formulation for debt composition, maturity, interest rates, and redemption.
Pillars of debt management strategy include low borrowing costs, risk mitigation, and market development.
Responsibilities lie with:
- Internal Debt Management Department (IDMD) for state debts.
- Department of Economic Affairs for external debts.
- Ministry of Finance and RBI for other liabilities.

Fiscal Responsibility and Budget Management (FRBM)

Enacted in 2003 to legislate deficit reduction and central government debt control.
Goals include inter-generational equity, long-term macroeconomic stability, improved fiscal-monetary coordination, and fiscal operation transparency.

Budget Concepts

Surplus Budget: When estimated receipts exceed expenditures.
Deficit Budget: When estimated receipts are less than expenditures.
Balanced Budget: Revenues equal expenditures.
Unbalanced Budget: Can be either surplus or deficit.
Capital Receipts: Result in reduced assets or increased liabilities.
Public Account: Manages funds where the government acts as a banker, such as Provident Funds and Small Savings, without requiring parliamentary approval for expenditure.

Fiscal Policy

Involves government spending, taxation, and borrowing to influence economic activity and aggregate demand.
Functions as a demand-side policy; no action is needed when an economy is at full employment.
Objectives include:
- Full employment achievement and maintenance.
- Price stability.
- Economic development acceleration.
- Equitable income and wealth distribution.
Discretionary fiscal policy refers to deliberate changes in government spending and taxes to influence economic performance.

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Description

This quiz explores the role of progressive taxes in financing public services, particularly for low-income households. It examines employment reservations, monetary aid for families below the poverty line, and special schemes for vulnerable populations. Additionally, it discusses the balance between equity and efficiency in redistribution measures.