REASONS FOR GOVT. SPENDING

1. Explain what are the various Reasons for Government  Spending?

Ans: The main Reasons for Government  Spending are as follows:

    A. Public Goods             B. Merit Goods  

    C. Social Reasons        D. Control of Economy

A. Public Goods

Goods and services which are provided by the government because everyone benefits from them, even if they do not pay for them, are called Public goods.

The government provides these goods and services as no private firm would wish to produce them. They are funded by collecting taxes. Ex: roads, street lights, police force

B. Merit Goods

Sometimes the government provides goods and services because they think that people ought to have them, even if they cannot afford to buy them. These goods and services are called merit goods. Example: Health care & education, Etc.

C. Social Reasons

The Govt. spends large sum of money in order to provide the safety net, so that no body in the country need go without food, shelter or health care. All these provided by the govt. for the social reason & social security, are often called as social welfare.

D. Control of Economy

Govt. spends so much money to collect Tax, control inflation, generate employment, improve the output & productivity etc. which finally helps the Govt. to Control the Economy as a whole .

E. Redistribution of Income

            Through the transfer earning, social security measures, Progressive Taxation etc. Govt. always try to redistribute the income of the nation. It always helps the govt. to reduce the inequalities of income & wealth distribution.