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Economy Budget Economic Policy

Government economic policy involves measures to influence the economy, primarily reflected in the national budget through allocative, stabilization, and distributive functions. Over time, the emphasis on these functions has shifted, with allocative concerns dominating in the 19th century, followed by a focus on distribution in the early 20th century, and stabilization in the mid-20th century. The ongoing debate over resource allocation remains unresolved, with various factions in democracies advocating for different priorities and levels of public sector involvement.

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30 views2 pages

Economy Budget Economic Policy

Government economic policy involves measures to influence the economy, primarily reflected in the national budget through allocative, stabilization, and distributive functions. Over time, the emphasis on these functions has shifted, with allocative concerns dominating in the 19th century, followed by a focus on distribution in the early 20th century, and stabilization in the mid-20th century. The ongoing debate over resource allocation remains unresolved, with various factions in democracies advocating for different priorities and levels of public sector involvement.

Uploaded by

biggykhair
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© © All Rights Reserved
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government economic policy, measures by which a

government attempts to influence the economy. The


national budget generally reflects the economic policy of a
government, and it is partly through the budget that the
government exercises its three principal methods of establishing
control: the allocative function, the stabilization function, and the
distributive function.
Over time, there have been considerable changes in emphasis on
these different economic functions of the budget. In the 19th
century, government finance was primarily concerned with the
allocative function. The job of government was to raise revenue
as cheaply and efficiently as possible to perform the limited tasks
that it could do better than the private sector. As the 20th
century began, the distribution function acquired increased
significance. Social welfare benefits became important, and
many countries introduced graduated tax systems. In the later
interwar period, and more especially in the 1950s and ’60s,
stabilization was central, although equity was also a major
concern in the design of tax systems. In the 1970s and ’80s,
however, the pendulum swung back. Once more, allocative
issues came to the fore, and stabilization and distribution
became less significant in government finance.

The allocative function


The allocative function in budgeting determines on what
government revenue will be spent. Because a high proportion of
national income is now devoted to public expenditure, allocation
decisions become more significant in political and economic
terms. At all times and in all countries the calls for expenditure
on specific services or activities, or for more generous transfer
payments, will always exceed the amount that can reasonably be
raised in taxation or by borrowing. The debate about how these
scarce resources should be allocated has continued for hundreds
of years, and, although numerous methods of deciding on
priorities have emerged, it has never been satisfactorily resolved.
In practice, most democracies contain a number of different
factions that disagree on the proper allocation of resources and
indeed the proper level of public sector involvement in the
economy; the frequent change of national governments is related
to the constant search for the right answers.

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