The Government: Budget and the Economy
Government Budget is the financial statement that shows item-wise estimate of the expected revenue and anticipated expenditure during a fiscal year. A budget is needed to know the financial performance of the government over the past one year and to know the financial programs and policies of the government for the next one year.
There are many objectives of the government budget, such as allocation of resources, public accountability, etc. There are mainly two types of budget in India: Union and State budget. The union budget is the prepared by the central government and is presented in the Lok Sabha; it is divided into the railway budget and main budget. State budget is prepared by the state government and presented before the state legislative assembly.
Government budget is classified into revenue budget and capital budget, which are further classified into revenue receipts and revenue expenditure and capital receipts and capital expenditure. - Revenue receipts are further classified into: Tax Revenue and Non-Tax Revenue. Tax Revenue: It is divided into direct tax and indirect tax. Non-Tax Revenue: is classified into commercial revenues and administrative revenue. Capital Receipts create a liability or lead to a reduction in assets. These are: Recovery of loans and advances, External assistance, etc. Budget expenditure of the government is classified under three broad heads as: Revenue and capital expenditure, Plan and non-plan expenditure and Development and non-development expenditure. -Revenue Expenditure: These are expenditure that neither creates any assets nor reduce any liability of government. For example, expenditure by the government on old age pension, etc. Capital Expenditure: These are the expenditure that either creates asset or causes reduction in liabilities. For example: repayment of the loan.
Balanced Budget shows that the government’s estimated receipts are equal to its estimated expenditure. Unbalanced Budget shows that the government’s estimated receipts are not equal to its estimated expenditure. Unbalance balanced budget is of two types: Budget Surplus and Budget Deficit. There are three types of budget deficit; Revenue Deficit (excess of revenue expenditure over revenue receipts), Fiscal Deficit (reflects the borrowing requirements of the government) and Primary Deficit (difference between fiscal deficit and interest payment). Public debt is the borrowings made by the government.
Other Important keywords: Fiscal policy, Changes in government expenditure, changes in Taxes, , Case of Proportional Taxes, Balanced budget mutilplier, Tax multiplier, automatic stabilizer, transfers, Ricardian equivalence, Deficit reduction, Discretionary fiscal policy.