What is the difference between revenue expenditure and capital expenditure? Explain how taxes and government expenditure can be used to influence the distribution of income.

OR

What is the difference between a direct tax and indirect tax? Explain the role of the government budget in influencing the allocation of resources.

● Revenue expenditure is the expenditure that neither creates any assets or reduces any liability.

● Capital expenditure is the expenditure that either creates assets or reduces liability.

● Taxes and government expenditure can be used to influence the distribution of income.

● The government can impose a higher level of tax on the richer sections of the society and on the goods consumed by them.

● The money collected can be used to give free goods and services to the poorer sections of society.

● This will help to reduce the disposable income of the rich and increase the same of the poor.

● Thus, the distribution of income can be altered.

OR

● A direct tax is the tax whose liability to pay and incidence lies on the same person on whom it is levied.

● Indirect tax is the tax whose liability to pay and incidence lie on different persons.

● The government budget can influence the allocation of resources for the production of different goods and services through its budget.

● If the government wants more resources should be used to produce some specific good, it gives incentives to the producers such as tax reduction or subsidy.