Economics

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Showing posts from May, 2022

Price rise in economy

PRICE RISE IN ECONOMY Introduction The finance minister announced a tax cut on fuel and reduction in customs duty for imported raw materials. A further tightening of monetary policy is expected. Inflation vs jobs Policymakers are more worried about high inflation than high unemployment. When an economy goes through a phase of high inflation, chances are that unemployment rate will. While high inflation may be robbing people of their purchasing power, it often ends up getting unemployed jobs. Options •The political sensitivity to high unemployment and high inflation varies from country to country and is influenced by past experience. •The central bank is mandated to give equal weightage to achieve maximum employment and containing inflation. •According to study, 'A one percentage point increase in unemployment rate lowers well being by more than five times as much as one percentage point increase in the inflation rate. •The situation is more complex in India. Since 2016,the cou

Value added tax (VAT)

VALUE ADDED TAX (VAT) It is a tax on the value added to a good or service. Value added is the difference between a firm's revenue and it's payment to other firms. It is defined as the tax to be paid by all sellers of goods and services on the basis of value added by their respective firms. It is levied on the value added to the product of each stage in the chain of transaction. Characteristics a)It us multistage tax rather than single stage one like the retail sale tax. b)It is levied on all stages of production and distribution. c)It is comprehensive unlike selective excises. d)It is collected in bits at each stage of production and distribution. e)It is method of taxing by instalments final spending in the domestic economy. f)It falls on each input entering into final products once and only once. Merits a)It avoids cost cascading effect because it ensures that an input is taxed only once. b)It is neutral between the processes of integration of production and therefore helps t

Single/Multiple tax

SINGLE TAX Single tax system means that there should be only one tax in the country may be on one commodity or one type of commodity. Merits a)Single tax is simple because work of government becomes easy due to one tax. b)It is less costly to collect. c)It is easy to Understand. Demerits a)It does not bring adequate revenue to government. b)It lacks elasticity. c)Burden of single tax is not equal on all. d)Evasion of single tax is possible. e)It is not realistic. f)It is not suitable for modern countries. Multiple tax Multiple tax refers to the tax system in which all types of taxes such as Income tax , expenditure tax are imposed so that every citizen of a country contributes to the state revenue. Merits a)It can raise sufficient resources to the government. b)It is more flexible as compared to single tax. c)It is based on the principle of equity. d)It is also comprehensive system. e)It helps to achieve objectives of economic growth ,economic equality and social justice. f)It is more

Proportional/progressive/regressive/degressive tax

PROPORTIONAL TAX These are those taxes whose rates remain uniform irrespective of size of income. Example : if tax is 10% ,then person with rupees 500 as his income will pay rupees 50 and person with rupees 1000 as his income will pay rupees 100 as tax. Sales tax, excise duty are its example. Merits a) Progressive tax is simple and every body cab understand without any difficulty. b)It can be easily decided and enforced. c)It enjoys advantage of certainty . Both tax payer and stare are certain about the amount of tax. d)It maintain existing distribution of income and wealth of country. e)It is advocated when authorities are unable to decide proper degree of progression. f)It leave taxpayer in same relative economic status as he was before the tax is imposed. g)It does not adversely affect people's desire to work and save. Demerits a)It does not result in equitable distribution of burden of taxation. Poorer makes much greater sacrifice than the richer. b)It does not reduce inequ

Indirect taxes

INDIRECT TAXES Indirect taxes are those taxes the burden of which can be shared with the another person. In other words , these are imposed on one person but can be paid by another person also. Example : custom duty, excise tax , sales tax. Merits a)Indirect taxes are convenient to the tax payer as well as state as tax payers pay tax in small amount and does not feel burden of it. b)Indirect taxes are difficult to evade because tax is mixed up with price . c)These are elastic . A little change in tax rate changes the quantity of tax. d)These are equitable because these are imposed on such commodities which are purchased by the consumers according to their ability. e)These act as check on consumption of harmful goods such as wine ,narcotics,tobacco etc. f)These make tax structure broad as these are applicable to entire population. g)These can influence investment and production in country .The government can encourage invest in priority sector by imposing higher rates of taxes on low

Direct taxes

DIRECT TAXES Direct taxes are those taxes which are paid by the person directly whom they are imposed . The burden of such taxes cannot be transfered from one person to another . Example : income tax . Merits a)Direct taxes are equitable as they are imposed according to the paying capacity of a person. b)These are economical because their cost of collection is low as they are usually collected at the source. c)These are certain. The tax payer knows whom,where and how much he has to pay. d)These are elastic as with the increase in country's income ,the revenue of government also increases. e)These are productive in the sense that government can get considerable amount of revenue from these taxes. f)These are convenient to pay because the manner and time of collection of these taxes us to the convenience of tax payer. g)These taxes arose civic consciousness among the tax payers and tax payers take interest in manner in which public money is spent by the government. h) Distributive

Wheat crisis

WHEAT CRISES Introduction : •On may 4,the government lowered its wheat production for the crop year ending june. •The production is expected to fall during warm weather condition on most part of wheat producing states of Punjab, Haryana, Madhya Pradesh, Uttar Pradesh. Decline in wheat production •Wheat production has seen a drop during winter. In last marketing year, the government had purchased from farmers. •During the same time, announcement came declaring 'unfolding war in Ukraine' which give rise ti acute food insecurity in countries . •After 5 straight years of bumper output of wheat, unprecedented heat waves causes substantial loss to the crop . Early summer affects the crop yields in the wheat producing states . Government procurement •A larger quantity of wheat was being bought by the traders at higher rate than the minimum support price. •Private traders have been prompted to buy more wheat from farmers as the price of wheat at international level has shot u

Sound tax system

Sound Tax System Both theory and practice of public finance tells that sound tax system has following features. a) Combination of tax :A good tax system does not depend too much on direct or indirect taxes alone. It has judicious combination of both.An important Canon of taxation is that tax system must involve equal marginal sacrifice from all the sections of the society. b) Productivity:A good tax system is that which brings adequate income to government with as few taxes as possible. .It is better to concentrate on limited number of taxes which are productive and which don't have any adverse effect on the will to save or invest. c) Elasticity:A good tax system must be elastic in the sense that with changes in tax rates,tax revenue just also change proportionately. The overall tax system must be fairly elastic so as to meet the rising needs of revenue. d) Buoyancy: A good tax system must also be buoyant in the sense that as national income rises,the tax revenue just also rise

Taxes-effects

TAXES-EFFECTS Taxes have important economic effects on income,price and enterprises. Because taxes involve compulsory payments,these have significant effects on behavior of individuals in production and consumption process. The four major economic effects of taxation are a) Reduction of incomes: A proportional tax does not affect income distribution,because it falls equally on all sections of society . Progressive taxes impose greater burden on the richer sections than on poor. Therefore these taxes redistribute income in favour of poor. Taxes which are regressive impose relatively greater burden on poorer sections as compared to richer section. Therefore, these worsen the income inequalities. b) Raising of prices : Indirect taxes are added to the prices of commodities by sellers and are fully charged from the consumers. Whenever excise duties on commodities are raised ,their prices go up. It fans the fires of inflationary and worsen the inflationary situation with time in two ways vi

Taxes- Role

TAX-ROLE Tax is an important source of revenue to the state. Taxes by transferring income from individual to government,reduce the purchasing power of individual and so are capable of altering the pattern of private consumption and investment and thus of national income. The role of taxation, particularly in developing or underdeveloped country are given below: a) Important consideration :Some important consideration are to be kept in mind: •Objectives of tax are closely connected with the overall economic as well as non - economic policies of gov,non tax component of fiscal policy and institutional and other conditions in the economy. •Objectives of tax differ between developed and underdeveloped countries. •Taxes are contradictory to each other. b) Developed country:A developed country is faced with the problem of cyclical fluctuations in income and employment. There is regular occurrence of booms and depression. In such a situation, taxes should be used to produce anticyclical effe

Tax -Principles

TAX - PRINCIPLES According to Adam Smith ,there are four Canons of maxims of taxation on admin side of public finance which are recognised as classic. A good tax according to him are those which contain a) Canon of equality : The Canon of equality implies that burden of taxation must be distributed equally according to the ability of the tax payers.Equality of social justice demands that rich people should bear heavier burden of tax and poor a lesser burden. b) Canon of certainty: Taxation must have element of certainty. According to Adam Smith ,the tax which each individual is bound to pay must to be certain and non arbitrary.T he time of payment , method of payment , amount to be paid should be clear to the contributor. c) Canon of economy: According to him , Every tax had to be contrived as both to take out and keep out of pockets of people . Indian govt has to maintain an elaborate tax collection machinery with a large staff of highly trained personnel involving low administrati

Tax-Classification

Tax-Classification Direct and indirect tax A direct tax is that whose burden is borne by the person on whom it is levied. He cannot transfer the burden of tax to some other person . Example :Income tax Indirect tax is that which is paid by one individual but the burden of which is borne by another individual. A person who pays the tax in first instance transfer it's burden to another person. Example : excise duty on sugar is paid first by the producer and then transferred to consumers. proportional, Progressive,Regressive and Depressive tax Proportional tax :It is a system of tax that imposed a lower tax rate on low income earners compared to those with high income. It is based on the ability to pay of tax payers. Progressive tax: A tax which increases with the increase in income is called progressive tax.The tax system of India is progressive in nature. Regressive tax : A tax which decreases as there is the rise in its income.In regressive taxation, the larger the income of ta

Tax - characteristics

Tax - characteristics Following mentioned are the good characteristics of Indian tax structure: a) Multiplicity of taxes :The main characteristics of Indian tax system us that there are Multiplicity of taxes in India. Almost all kinds of taxes have been imposed in India such as Income tax , Wealth tax , Capital gain tax etc b) Based on fundamental principles: Indian tax structure is said to be based in fundamental principles of taxation n Almost all principles gave been included in Indian tax structure from the very beginning till date the efforts are being made constantly to incorporate principles which are part and parcel of good tax system. c) Dominance of indirect tax :There is Dominance of indirect taxes as against direct taxes in Indian tax structure . It is estimated that more than 85% of taxes are collected through indirect taxes . d) Maximum social benefit :Indian taxation system is said to be used as an instrument of attaining certain social objectives e.g . As a means of r

TAX

Tax Meaning of tax : A tax is a compulsory payment by an individual,a family or a firm made to government for use in common interests of all without any claim for in return for contribution made . It has to be paid by the person on whom it is levied.It is considered as largest source of public revenue.It must be spent on general welfare after it has been collected e.g municipal committee will spend on water, road , electricity and property taxes. Objectives a) The most important objective of taxation is to increase government's income.As public expenditure rises,taxation is increased. b) Taxes like income tax, property tax is to reduce the inequality of income between different sections of society. c) In order to restrain people from consumption of intoxicants , heavy taxes are imposed to make them expensive. d)Another objective of taxation is to promote exports and reduce imports so that burden of foreign exchange is kept to minimum. e) Taxes are imposed in scarce resources li

Public revenue

PUBLIC REVENUE Meaning : The income of government through all the sources is called public revenue. In wider sense, it includes all the incomes or receipts which a public authority may secure during any period of time. In narrow sense ,it includes only those sources of income of public authority which are ordinarily known as revenue resources. The former is termed as public receipts and latter is called as public revenue. Sources of public revenue Public revenue is of two types : Tax revenue Non-tax revenue Tax revenue: A fund raised through various taxes is referred to as tax revenue.Taxation is the main source of public revenue. It is compulsory payment made by the tax payer to the government. This type of revenue is used for general needs of the government. Non-tax revenue: Public income received through administration,commercial enterprises ,gifts and grants are the source of non-tax revenue. It includes a ) Administrative Revenue :Under public Administration, public auth can rai

Causes of increase in public expenditure

CAUSES OF INCREASE IN PUBLIC EXPENDITURE a) Wagner's law : The main cause of growth of public expenditure is increasing tendency for Activities of government to increase both intensively and extensively . There is increase in activities of local as well as central government. b) Wiseman-peacock hypothesis : Public expenditure increase in jerks or step like fashion. Some social and other disturbances cause public expenditure to increase which makes the existing state revenue inadequate. Ultimately,the public expenditure and revenue get stabilised at new and high level which is called displacement effect. c ) Increasing efficiency :Modern development have tended to increase the efficiency of public authorities relatively to that of private association. The cause is that private institution are guided by profit motive whereas the aim of state is social welfare. d) Increasing population : with the increasing population, the responsibility of state to provide public service also increa

Public expenditure-Effects

PUBLIC EXPENDITURE-EFFECTS It can be studied under following heads a)On Production b)On distribution c)On consumption d) Miscellaneous Effects of public expenditure on production The level of production and employment in any country depends on three factors -Ability to work,save and invest -Willingness to work , save and invest -Diversion of economic resources - Ability to work,save and invest Public expenditure on education, medical services,housing facilities,availability of basic necessities will increase the efficiency of person to work. It can promote saving on the part of lower income groups by providing additional income to them , for a person who has larger income can be normally expected to save a large amount. Similarly,public expenditure on increasing wages and salaries of the people,supply of goods at cheap rates and expenditure on welfare of society will increase purchasing power,standard of living,efficiency and thereby ability to work and save will also increase. Pu

Public expenditure -Canons

PUBLIC EXPENDITURE -CANONS/PRINCIPLES The general rules which are adopted by the government in formulating their public expenditure policies are termed as principles or Canons of public expenditure. a) Canon of benefit -Public expenditure should be planned in such a way as to yield maximum social advantage and social welfare to the community as a whole and should not be incurred on particular group of community. The government should incur it's public expenditure in a manner as to promote the greatest good . b )Canon of economy -Economy does not mean miserliness it only means that wasteful and extravagant expenditure should be avoided at all levels. Economy can be in two spheres one in which state should spend money on necessary matters and second in which state should develop productive powers of the community . c)Canon of sanction -Before incurring any expenditure , the concerned government department should obtain prior proper sanction from the competent authority . The obje

Public expenditure -Classification

PUBLIC EXPENDITURE - CLASSIFICATION Adam Smith has classified public expenditure on the basis of function of government. a )Defence expenditure includes expenditure incurred on the purchase of arms and ammunition, defence personnel etc. b )Civil expenditure includes adminstrative expenditure incurred for the maintenance of law and order and justice in the country. c) Economic expenditure includes expenditure incurred on commercial activities like rail, roads etc. d )Social expenditure includes expenditure on education,public health , social security schemes etc. According to Dalton , classification are given in following ways : a) Maintenance of ceremonial head of state , including diplomatic representatives. b) Maintenance of machinery of civil government which includes expenses of executive and legislative. c) Maintenance of army and police to protect country from foreign aggression and to maintain law and order. d) Administration of justice. e) Expenditure on development of a

Public expenditure

PUBLIC EXPENDITURE Meaning : Public expenditure refers to the expenses of public authorities in protecting the citizen and in promoting social welfare.Public expenditure is the expenditure incurred by the government of centre ,state or local either for satisfaction of Collective needs of citizens or for economic welfare of the citizens. Public expenditure is called as end of all Financial activities of the state. It is aimed to provide maximum socio-economic welfare of the society. It is considered as backbone of economic development of the country. Similarities between private expenditure and public expenditure a)Both private and public try to obtain maximum satisfaction out of expenditure. b)Both private and public like to obtain greatest result at the minimum cost. c)Both private and public adjust their income according to expenditure. Difference between public and private expenditure a)The purpose of public expenditure is welfare of society but private expenditure is limited to we

Public finance -Importance

PUBLIC FINANCE - IMPORTANCE a )To increase rate of savings and investment : Most of the people spend their income on Consumption.Saving is very low so the investment is low . The government can encourage these rate of savings and investment in the economy. b)To secure equal distribution :Unequal distribution of income and wealth is basic problem of under developed countries. The rich are getting richer and poor are getting poorer. So for the equal distribution of income and wealth, there is need of public finance help us in achieving this by taxing rich and distributing the resources among poorer. c) Optimum allocation of resources : Fiscal measures like taxation and public expenditure programmes can greatly effect the allocation of resources in various occupation and sectors, for its optimum allocation and utilization. d) Capital formulation: Fiscal policy will be designed in a manner to perform two functions of expanding investment in public and private enterprise and by diverting r

Public finance and private finance

Public finance and private finance Similarities a)The resources are limited for both public and private finance. b)Both public and private finance has same motive of satisfaction to human wants. c) Marginal utilities of expenditure of both public and private finance are equal. d)Both public and private authorities have to borrow when they are short of income. e)Both the finances require efficiency management and administration. f)Both public and private finance tries to secure maximum advantage . g)Income is not fixed in both the cases of public as well as private finance. h)Both the finances face the problem of adjustment of income and expenditure. I)Both the finances are required to repay their loans. j)The financial activities of both public and private finance give birth to saving,capital accumulation, investment activities by which consumption and investment activities are boosted in economy and thus contribute to National product. k) Both the finances make use of labour and capi

Public finance-Role

PUBLIC FINANCE -ROLE In modern times , public finance has assumed great economic and social importance in both developed and developing countries due to increasing functions of state. The main role of public finance in the economy is mentioned as under : a) Economic system - In General theory , the government should interfere in the Economic activities in order to save capitalist economy from ill effects of trade cycles. The objective of public finance is to increase or decrease effective demand to attain economic goals of the country and in order to achieve these national objectives in mixed economy ,there is no harm in adopting deficit budget . In socialist economy, all economic activities are completely understand the control of government. Therefore the economic activities are completely performed through public finance. b) Developed countries : The government has to play important role in developed economy during the periods of trade cycles. Thus economic stability and mainte

Public finance

PUBLIC FINANCE Introduction : Public finance is related to an Italian word 'fisc' which means government Treasury. Public finance is a fiscal science which studies the operation of government treasure. It consists of two words public and finance where public stands for authorities and finance stand for monetary resources . Thus the combined meaning of public finance deals with the financial operations of public authorities. Definition : Public finance deals with the process of raising public revenue and spending public funds. It deals with the income and expenditure of the public authorities with the manner that the one is adjusted with the other.Public finance in modern times is the study of all the economic activities related to economic objectives through the governmental control and administration. Scope of Public finance The scope of Public finance Includes: a) Public Revenue : Public Revenue deals with the various methods of raising revenue . It includes the policy of t

NITI Aayog and Planning Commission

NITI Aayog and Planning Commission The differences between NITI Aayog and Planning Commission are: •NITI Aayog has not been given the mandate or powers to impose policies on States. NITI Aayog is basically a think-tank or an advisory body. •The powers for allocation of funds have not been given to the NITI Aayog. The powers are with the Finance Ministry. •In NITI Aayog, State Governments have to play a more proactive role. •Based on the requirements, there are part-time members appointed in NITI Aayog. •The Governing Council of NITI Aayog has Lieutenant Governor of Union Territories and State Chief Ministers. •The Planning Commission had a power to impose policies on States and for the projects approved by the Planning Commission. •The planning Commission had to power to allocate funds to the State Governments and various Central Government Ministries for various programmes and projects at National and State Levels. •State Governments did not have much role to play apart from taking pa