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1) It is necessary for the government to perform certain basic functions like protection and
security. The benefit from the very existence of the government activities will exceed the
cost of maintaining its activities. In fact without the basic functions of the government,
the very existences of the society cannot be guaranteed. Protection also adds to the
productive efficiency of the society.
2) No basis for a generalization that every tax is a burden upon the society and that every
government expenditure is a benefit for it. Example, a tax on consumption from harmful
drugs is not a burden upon the society. But a tax on health services will be.
Example II,
-If the government undertakes the provision of social overheads and other public
utilities, it leads to the emergence of external economics. Through them, the cost of
production falls, efficiency in production increases and the economy benefits. The
benefits to the economy are actually more than it get.
3) Effects of the budget may spill over to the following periods. Hence appropriate time tags and effect – spread should be considered.
4) If all taxes are harmful and all government expenditures are beneficial, then the best
course for the government is not to levy any taxes at all. Financing of its activities could
be through deficit financing only. However taxes or expenditures cannot create or destroy
resources. Only transfer of resources between private and public sectors takes place.
5) Non-tax revenues like fees, fines, profits from parastatals, printing press, and market
borrowing e.t.c. cannot be dismissed as unimportant.
6) Every state is committed to certain compulsory expenses. According to Adam Smith
(1776), these activities include maintenance of state itself, defense, maintenance of law
and order, imparting justice, servicing existing debts e.t.c.
7) It is not easy to identify and quantify the effect of state operations. For example; indirect taxation changes the relative prices of the commodities been taxed. This changes demand, consumption, production and investment pattern. Hence the welfare and growth effect of government activities cannot be linked with the amount of taxation and expenditure only.
8) It is unrealistic to assume a balanced budget. In developing countries, deliberate deficit budgeting may be needed to stimulate saving and capital accumulation.
9) The optimum level of government activities determination is done aggregative. Other
factors such as income inequalities, regional imbalances are not considered yet they are
very important.
NatalieR answered the question on June 21, 2022 at 06:43