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Question : 14
Total: 19
What is the difference between revenue expenditure and capital expenditure? Explain how taxes and government expenditure can be used to influence distribution of income in the society.
Solution:
Difference between Revenue expenditure and capital expenditure :
To reduce inequalities of income and wealth, government can influence distribution of income by levying taxes on the rich people and granting subsidies to the poor people. Government levies higher rate of tax on rich and lowers the rate on the low income group people. Government provides subsidies and amenities to people whose income level is low. Fiscal instruments like taxation, subsidies and public expenditure can be made use of to influence distribution of income in the society.
| Revenue Expenditure | Capital Expenditure |
|---|---|
| (i) Revenue expenditure refers to the expenditure that does not result in the creation of assets or reduction of liabilities. | Capital expenditure refers to the expenditure which leads to creation of assets or reduction in liabilities. |
| (ii) It is used for normal running of government departments and maintenance. | It is used for acquiring capital assets. |
| (iii) The recurring expenditure is of two types: | The capital expenditure is also of two types: |
| (a) Plan revenue expenditures. | (a) Plan capital expenditure. |
| (b) Non-plan revenue expenditure. | (b) Non-plan capital expenditure. |
| (iv) It's recurring in nature and incurred regularly. | It is not recurring in nature. |
| (v) It is short period expenditure. | It is long period expenditure. |
| (vi) Examples : Salaries of govt. employees, pensions, interest payments etc. | Examples : defence capital, purchasing land, building, machinery etc. |
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