Question

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 in the society.

Accepted Answer

Difference between Revenue Expenditure and Capital Expenditure:

Basis

Revenue Expenditure

Capital Expenditure

Meaning

The expenditure that neither creates any assets nor causes a reduction in any liability of the government is called Revenue expenditure.

The expenditure that either creates an asset or causes a reduction in the liability of the government is called Capital expenditure.

Nature

Revenue expenditures are regular and recurring in nature.

Capital expenditures are irregular and non-recurring in nature.

Purpose The revenue expenditure is incurred for the normal running of the government departments and the provision of various services. The capital expenditure is incurred for the acquisition of assets and granting loans and advances by the government.

Examples Grants to state, health services, pensions, etc. Repayment of loans, Expenditure on acquisition of capital assets, etc.

Reducing Inequalities in Income and Wealth

Economic inequality in income and wealth is an inherent part of every society. The government tries to reduce these inequalities through budgetary policies.

Government influences the distribution of income and wealth by imposing taxes on the rich and spending more on the welfare of the poor.

This measure reduces the income of the rich and helps in raising the standard of living of the poor.

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 in the society.

Important Questions on Government Budget and the Economy

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