MODEL ANSWER TO SHORT QUESTIONS PUBLIC FINANCE

• PUBLIC FINANCE
SHORT AND LONG QUESTIONS 1
SHORT QUESTIONS

a.        EFFECT OF PUBLIC EXPENDITURE ON DISTRIBUTION

b.       MAIN CANONS OF TAXATION

c.        PROGRESSIVE TAXATION

d.       DEFICIT FINANCING

e.       DEFINE TAXABLE CAPACITY

f.         DIFFERENCE BETWEEN IMPACT AND INCIDENCE OF TAXATION

•    LONG QUESTION

I.            DEFINE PUBLIC FINANCE? DISCUSS THE NATURE AND SCOPE OF PUBLIC FINANCE

II.            DISCUSS THE CAUSES OF INCREASE IN PUBLIC EXPENDITURE IN RECENT TIMES

III.            EXPLAIN THE DEMAND AND SUPPLY THEORY OF INCIDENCE OF TAXATION

IV.            DISCUSS THE BURDEN AND VARIOUS METHODS OF REDEMPTION OF PUBLIC DEBT IN INDIA.

•    EFFECT OF PUBLIC ON DISTRIBUTION

•    MEANING OF PUBLIC EXPENDITURE: PUBLIC EXPENDITURE INCURRED BY THE CENTRAL, STATE OR LOCAL GOVT OF A COUNTRY FOR ITS ADMINISTRATION, SOCIAL WELFARE AS WELL AS GROWTH AND DEVELOPMENT OF THE ECONOMY.

•    EFFECT OF PUBLIC EXPENDITURE ON DISTRIBUTION:-IT EFFECTS THE DISTRIBUTION IN FOLLOWING WAYS:-

a.        REGIONAL INEQUALITY:-TRY TO REMOVE THE INEQUALITY BY MAKING MORE EXPENDITURE ON THE DEVELOPMENT OF BACKWARD AREA OR RENDERING FINANCIAL HELP TO THE SMALL SCALE AND COTTAGE INDUSTRIES

b.       DISTRIBUTION OF THE DIVIDENDS OF INDUSTRIAL DEVELOPMENT

c.        BENEFITS TO WEAKER SECTION BY OPENING EDUCATION,MEDICAL CARE LABOUR WELFARE ETC

d.       INCREASE IN THE ABILITY TO POOR BY GIVING DIRECT HELP OR BY INDIRECT HELP

•    MAIN CANONS OF TAXATION

•    CERTAIN PRINCIPLES OF TAXATION

•    ADAM SMITH’S CANON OF TAXATION

a.        CANON OF EQUITY:-EVERY ONE SHOULD PAY EQUAL TAXES

b.       CANON OF CERTAINTY:-ALL THE INDIVIDUAL MUST KNOW HOW MUCH TAX THEY HAVE TO PAY AT WHICH TIME AND TO WHERE AND WHOM

c.        CANON OF CONVENIENCE:-EVERY TAX SHOULD BE COLLECTED AT THE TIME AND IN THE MANNER WHICH IS CONVENIENT FOR TAX PAYER

d.       CANON OF ECONOMY:-COST OF TAXATION SHOULD BE LOWEST POSSIBLE

•    MODERN CANONS OF TAXATION:-

I.            CANON OF ELASTICITY: TO COVER ADDITIONAL REVENUE TO MEET UP ADDITIONAL EXPENDITURE

II.            CANON OF PRODUCTIVITY:-DOES NOT ADVERSELY AFFECT TRADE AND INDUSTRY

III.            CANON OF VARIETY:-MULTIPLE TAXATION SYSTEM

IV.            CANON OF SIMPLICITY

V.            CANON OF DESIRABILITY

VI.            CANON OF FLEXIBILITY

VII.            CANON OF POPULARITY

VIII.            CANON OF CO- ORDINATION

•    PROGRESSIVE TAXATION

•    PROGRESSIVE TAX IMPLIES THAT THE RATE OF TAX INCREASES WITH INCREASE IN INCOME.

•    DALTON,” IN PROGRESSIVE TAXES, THE HIGHER THE INCOME A TAX PAYER HAS THE HIGHER PROPORTIONATE TAX HE PAYS.LIKE MY INCOME IS 50,000 AND I HAVE TO PAY TAX AT THE RATE OF 10% BUT WHEN IT RISES TO 1,00,000 AND THE RATE IS 15%

•    PROGRESSIVE TAX ARE EQUITABLE AND THEIR BURDEN IS MORE ON RICH THAN POOR AND DISPARITY CAN BE REMOVED BY ADOPTING IT.

•    BUT THESE KIND OF TAXATION SYSTEM HAS NEGATIVE EFFECT ON CAPITAL FORMATION AND IT MAY INCREASE IN CORRUPTION,

•    EFFECT OF PROGRESSIVE TAXATION ON PRODUCTION AND DISTRIBUTION

1.       EFFECT ON PRODUCTION: IT HAS ADVERSE EFFECT ON PRODUCTION AND CAPITAL FORMATION. LOW CAPITAL FORMATION MEANS LOW RATES OF PRODUCTION

2.       EFFECT OF DISTRIBUTION: HELPS IN EQUITABLE DISTRIBUTION OF INCOME AND WEALTH

•    DIFFERENCE BETWEEN IMPACT AND INCIDENCE

A.       IMPACT MEANS THE INITIAL BURDEN OF TAX BUT INCIDENCE REFERS TO THE FINAL BURDEN

B.       THE BURDEN OF IMPACT IS FELT BY THE PERSON TO WHOM THE GOVT LEVIES THE TAX BUT BURDEN OF INCIDENCE IS FELT BY THE PERSON WHO ACTUALLY BEARS THE TAX

C.       THE BURDEN OF IMPACT CAN BE SHIFTED BUT IT IS NOT POSSIBLE TO SHIFT THE BURDEN OF INCIDENCE.

•    TAXABLE CAPACITY

•    MAXIMUM CAPACITY OF THE PAYING OF TAX

•    MAXIMUM AMOUNT OF TAX WHICH MAY BE COLLECTED FROM A PARTICULAR TAX PAYER OR FROM GROUP OF TAX PAYER

•    FINDLAY SHRIRRAS” TAXABLE CAPACITY OF A COUNTRY IS MAXIMUM AMOUNT THE CITIZENS OF A COUNTRY CAN CONTRIBUTE TOWARDS THE EXPENSES OF THE PUBLIC AUTHORITIES WITHOUT HAVING TO UNDER GO AN UNBEARABLE STRAIN.

•    KINDS OF TAXABLE CAPACITY

1.       ABSOLUTE TAXABLE CAPACITY

2.       RELATIVE TAXABLE CAPACITY

•    ABSOLUTE TAXABLE CAPACITY

•    MAXIMUM AMOUNT OF MONEY OR PROPORTION OF NATIONAL INCOME THAT CAN BE TAKEN BY THE GOVT IN THE FORM OF TAXES WITHOUT PRODUCING ADVERSE EFFECT

•          MINIMUM: IS ZERO. NO BODY WANTS TO PAY TAX

•          MAXIMUM:-THAT THE GOVT CAN COLLECT IN THE COUNTRY IN THE FORM OF TAXES. IT IS RELATED TO THE PERIOD OF TAXES.

•          OPTIMUM: MAXIMUM AMOUNT OF TAXATION THAT CAN BE RAISED AND SPENT TO MAIXMISE ECONOMIC WELFARE

•    RELATIVE TAXABLE CAPACITY

•    COMPARATIVE TERM. RATIO OF THE TAXABLE CAPACITY OF ONE UNIT TO THAT OF THE OTHER UNIT. TAXABILITY CAPACITY OF TWO COUNTRIES OR TWO INDIVIDUAL COMPARED. LIKE A COUNTRY ‘S TAXABLE CAPACITY IS 200 CRORE AND B COUNTRY’S TAXABLE CAPACITY IS 400 CRORES SO B COUNTRY’S RELATIVE TAX ABILITY WILL BE 400/200=2:1

•    A COUNTRY ‘S RELATIVE TAX ABILITY WILL BE = 200/400=1/2 =1:2

•    DEFICIT FINANCING

•    MEASURE TO MEET THE DEFICIT OF THE GOVT’S BUDGET. BY ADOPTING FOLLOWING MEASURES:-

i.            BORROWING FROM WITH IN THE COUNTRY

ii.            BORROWING LOAN  FROM FOREIGN COUNTRIES

iii.            CREATING ADDITIONAL MONEY

•    PROF. SHINOEY,” DEFICIT FINANCING REFERS TO THE FINANCING OPERATIONS OF THE GOVT TO COVER THE GAP BETWEEN THE RECEIPTS AND DISBURSEMENT.

•    MEANING OF DEFICIT FINANCING IN WESTERN COUNTRIES:-BY BORROWING FROM THE PEOPLE

•    IN INDIA:-THE FOLLOWING MEASURES:-

•              TAKING LOAN FROM THE CENTRAL BANK

•              BY WITHDRAWING CASH BALANCE FROM THE GOVT TREASURY

•              ISSUING NEW CURRENCY BY THE GOVT

IN INDIA THE MAJOR PART OF THE DEFICIT FINANCING IS MET BY BORROWING FROM THE RBI BY DEPOSITING GOVT SECURITIES. RBI PRINTS NEW NOTES AND ISSUE THEM TO GOVT AND SUPPLY OF MONEY INCREASES.