CHAPTER FIVE

5. Government Budgeting
Chapter Objectives
There was a time when the activities of government were few and, hence, much importance
was not attached to government budgeting. It was rather a mere report for information of
legislature. But, in the modern times when countries are fast becoming welfare states with
increasing responsibilities of government, the activities of public authorities have
expanded and government budgeting has become a chief instrument of economic
development. In this chapter issues like meaning of the government budget, theories of
government budgeting, classification of budget and the role of budget will be discussed
and analyzed.
Thus, after studding this chapter you will be able to:
 define what government budget is
 understand the different theories of government budgeting
 state the various classification of budget
 Explain the role the government budget can play as instrument of economic policy.
5.1 Meaning and purpose of government budget
Meaning. Today, the government budget is much more than a statement of income and
expenditure of public authorities. It is a reflection of not only taxation and public
expenditure policy, but also of a plan for future course of action. From the study of the
budget, one can make an assessment as to the extent to which it is designed to secure the
normative ideals of allocation, distribution, stabilization and growth. As Gladstone
remarks, “Budgets are not merely maters of arithmetic, but in thousand ways go to the root
of prosperity of individuals and relation of classes, and the strength of kingdom.”
According to Bastable, budget has come to mean the financial arrangements of a given
period, with the usual implication that they have been submitted to the legislature for
approval.
Though budget is a program for future action and is generally framed for a year, it presents
a picture of the details of expenditure, taxation and borrowings for three consecutive years,
i.e., the actual receipts and disbursements of the previous year, the budget and revised

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estimates of the current year and the estimated receipts and expenditures of the coming
fiscal year. If, for example, the current year is 1990-91 and the budget is to be framed for
the fiscal year 1991-92, then the estimated receipts and expenditures, i.e., budget estimate
for 1991-92 will be accomplished side by side with the actual budget account of receipts
and expenditures for 1989-90 and the budget as well as revised estimates for the current
year 1990-91. The fiscal year in our country, Ethiopia, comprises the period from 1st July
to 31 June. Though budget estimates for the coming fiscal year contain proposals of
taxation, borrowing and public expenditure, the government in course of implementation
of the budget programs might face shortage of funds due to some important additions of
activity and, hence, might be in the necessity of fresh proposal of revenue receipts and
expenditure which are made in what is called a “Supplementary Budget”. In this way, the
action plan of the original budget gets revised.
A good budget should be one that will enable the legislature and the people to appreciate
the proposals of receipts and disbursements in the context of prevailing state of economy
of the country. For this purpose, the budget plan should be accompanied by a report of
pre-budget survey of the economic conditions and prevailing financial position of the
government. A good budget should be one that will draw up programs of action in such a
manner that the proposals can feasibly be translated into realization. They should not be
over-ambitious and should be within the means, financial and otherwise. Another
important requirement of a good budget is that it should depict a clear picture of the state
of performance relating to programs of the government in the previous year so that it
becomes possible to see what have been achieved, what have been the shortcomings and
decide as to what course of action should be adopted in the budget plan.
The budget undergoes through different stages of action. Firstly, the budget frame is
structured. The government asks different departments to submit their proposed programs
of action for the coming year. After all such proposals are received, they are consolidated
into an overall budget plan. In the second stage, the budget is presented in legislature for
its approval. At this stage, the legislature carefully considers the proposals.
There may be additions or alternations in budgetary provisions as considered necessary by
the legislature. After the budget is approved, the government is authorized to take action
on the budget. Thirdly, the implementation of the budgetary programs is the next stage.

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Revenues are raised and public expenditures relating to the budget plan are made. In the
forth and the last expenditures relating to the budget plan are made. In the fourth and the
last stage, a scrutiny and Parliamentary Committees look after how best financial abuse
can be prevented.
Purpose. The purpose of government budget is varied. There are a number of objectives
which the budget seeks to attain simultaneously. The overall purpose is to use the budget
as instrument of government economic policy. The following are the chief purpose of the
budget.
To achieve any purpose, a planning is necessary. The government needs to achieve many
goals all of which cannot be attained at a time. A proper plan of action is, therefore,
necessary. A budget is such a plan which explicitly mentions the programs that are to be
taken up in the course of the fiscal year. Secondly, implementation of a program requires
availability of necessary funds. The extent of availability depends upon the budgetary
sources of revenue. Hence, that program-structure has to be built which can be supported
by the funds. This is the most important purpose of the government budget. Thirdly, to
achieve efficiency in public expenditure, physical targets of achievement are specified in
the budget. In fixing the physical targets, careful considerations is given to the factors of
efficiency in course of implementation of the programs so that nearer the actual
achievement at the close of fiscal year, the higher is the efficiency of level of expenditure
agencies. Fourthly, most of the countries, particularly in developing world, today have
taken up their task of their economic development in the phased manner of five year plans
and long-drawn perspective plans. In order that the planned targets are achieved at the end
of the plan period, resources have to be found. The annual government budgets are framed
with an eye to the provision of necessary funds for the purpose. Lastly, the government
budget serves the purpose of public accountability of funds to a considerable extent. The
first control is imposed at the budgeting framing level itself when the government asks
different departments to submit their own budgets. Because the departments know that
their programmes of expenditure will be scrutinized by the government level, they become
careful to observe economy in the budget. The next stage of control is imposed by the
legislature which is the ultimate authority to decide the size and extent of the budget. At
the end of the financial year, again, the government and its various departments are

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responsible to the legislature for their action and budgetary performance. Hence, budget
serves as a powerful weapon of financial control in respect of both collection of revenues
and disbursement of them.
5.2 Theories of government budgeting
Classical Theory. There are two theories of government budgeting, viz., (1) the classical
theory of balanced budget and (2) the modern theory of ‘Managed Budget’. The classical
theory of balanced budget is based on the assumption of full employment on one hand and
the ‘laissez-faire’ doctrine on the other. Since the economy operates at full employment
level, the problem of economy in the classical system is not attainment of growth. The
economy functions with maximum efficiency. Moreover, with the philosophy of ‘laissez-
faire’ followed, the functions of government are limited to the minimum and, hence, most
of the economic activities are performed by the private sector. Under such a situation, the
size of the budget is always small and the budget should always be balanced. If there is
budget deficit and it is financed by public borrowing, it will withdraw funds from private
sector where they are more productively employed. Such diversion of resources will bring
down over al economic efficiency.
Another justification of the balanced budget is that since deficit financing through
borrowing is easy, the practice of unbalanced budget will encourage expansion of
government activities as against the classical notion of small budgets. This will reduce the
capacity of government to spend for more important purposes because interest charges on
borrowed funds have to be paid in addition to repayment of the principal amount. Thus,
public borrowings are expensive; they require double payment in the form of debt charges
as well as repayment.
There are two views regarding the balanced budget theory. According to one view, the
balancing of budget is brought about by equating current revenues with current
expenditure. There is no role of borrowing in the budget. Since total revenues are equal
total expenditures, the budget is balanced. In the other view of balanced budget,
governmental receipts include public debt also. The budget has, however, two parts –
current budget and capital budget, both of which are balanced. Thus, current expenditures
are financed by current revenues while capital expenditures are financed by public
borrowing. Thus, the overall budget is balanced.

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Modern Theory. As against the above, the modern theory of Managed Budget does not
agree with the classical assumption of full employment. The celebrated Keynesian theory
of underemployment equilibrium shows that full employment is only a limiting case and is
not automatically attained. It follows that the normal situation is one of less than full
employment in an economy. Hence, in order to ensure employment of unutilized and idle
resources, a flexible budgetary policy is needed.
Thus, when widespread unemployment exists, the classical system of balanced budget
becomes helpless. The modern economists like Keynes, Hansen, Dalton and others
advocate that the objective of budget policy should be to attain and maintain full
employment. The modern approach to flexible budget policy is essentially a counter
measure against economic fluctuations of business cycle to which advanced countries are
subjected. When depression and unemployment occurs in the economy due to deficiency
of effective demand, the need is to inject additional purchasing power into the economy so
that effective demand, hence employment of production factors are enhanced. This
objective can be realized through a deficit budget policy; because such a budget will put
additional purchasing power into circulation and the aggregate consumption expenditure
will increase. This will raise prices and profit prospects of the business community which
will employ available unutilized production factors to increase production and meet the
increased demand. When the economy, on the other hand, suffers from inflation due to
excess purchasing power over and above the amount necessary to deal with the transaction
of available goods and services at prevailing prices, the necessity is to pump out the excess
amount from the economy. This can be done by surplus budget which will raise more
revenues like taxes and borrowings and lower down government expenditures. The process
will cure the ills of inflation and bring about economic stabilization. When there is neither
inflation nor unemployment, the budget should be balanced. Thus, there should be
flexibility in the budget policy according to the modern economists. Whether the budget
should be balanced or a deficit or a surplus should be decided by the prevailing economic
circumstances. Hence, the modern theory is called the principle of managed budget.
The main difference between classicists and modem economists in so far as the principle
of government budgeting is concerned lies with their views on savings and investment. To

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the classical economists, saving is always equal to investment because the former is
automatically converted into the latter. In such a system, there is no unemployment. To the
modem economists, however, savings and investment need not be equal. They are
determined by different factors and, more normally, they are different. When savings
become more than investment, deficiency of effective demand develops and
unemployment occurs due to fall in production. The economy is then faced with
depression. On the other hand, when investment becomes more than saving, the aggregate
purchasing power in the economy increases and the available output cannot absorb it at the
prevailing price level. Thus, there becomes inflation. It is only when savings are equal to
investment, the stabilization function of the economy remains undisturbed and the society
suffers neither form unemployment nor from inflation.
Under such circumstances, the modem theory argues, the budget policy of government
should be flexible, allowing for balanced budget when there is neither inflation nor
unemployment i.e., when savings and investment are equal and for unbalanced budget
when the economy suffers from either inflation or unemployment, i.e., when savings and
investment are unequal.
5.3 Budget Framing
A government budget is framed in the shape of a financial plan which is a statement of
income and expenditure relating to various economic and other activities that the
government intends to perform in the coming period. The structure of budget frame may
be different in different countries.
i) Revenue and Capital budget. Many countries, particularly the less developed ones,
prepare budget in two parts, viz., the revenue and capital budgets mainly because the
government has to spend enough resources on economic infrastructure without which
development process cannot start. Capital budget in these countries separates the revenue
expenditure items of capital account from those of current or revenue account.
The main sources of government revenue are taxes and borrowings from internal sources
on one hand and loans and grants from other governments and international agencies on
the other. In the revenue budget, the current expenditure is met out of domestic taxation,
while the expenditure on capital account is made out of domestic and foreign borrowings.
Government obligations for some extra-ordinary expenditure particularly in the initial

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stages of development arise on account of economic overheads like roads and railways,
electricity generation, schools and hospital buildings and facilities and other investment
projects which require special revenues and are generally financed by borrowing. Such
expenditures and receipts are shown in the capital budget.
Since capital projects are very important as they will form the sources of regular flow of
productive services in future, the long drawn financial plan and its consequence on the
economy over years ahead can be read from the capital budget. Such a separation of the
budgets secures expenditure discipline and, hence, the lenders can form a clear idea about
the solvency or otherwise of the country. It is, therefore, very important for developing
countries to frame such a type of budget. The above table will give an idea of the structure
of revenue and capital budgets.
ii) Incremental and Zero-base Budgets. The budget, in order to be meaningful, should be
appraised occasionally and requests for grant of fund should be properly reviewed. The
review is necessary at both administrative and legislative levels. But, there is a general
tendency to confine the exercise of scrutiny within the area of changes proposed for
particular budget items rather than to extend over every aspect of the whole program
structure. Past levels of expenditure are taken as given and only new additions to or
reductions from the past outlay are examined. This is what is known as 'incremental
budgeting' which should not be allowed to be in vogue since it cannot ensure proper
allocation of economic resources. ‘Such a focus on increases and reductions can well lead
to hardening of the bureaucratic arteries, maintain old programs that go unexamined simply
because no substantial changes are called for in the budget’. This deficiency of incremental
budgeting is done away with by what is called ‘Zero-base budgeting’.
Since every outlay in the budget has some attainment objective, either short-run or long-
run, it is necessary to regularly examine the expenditure components in the light of
anticipated results. In the case of budgeted expenditure having been associated with long
term objective, the time-bound expected result-component should be examined
occasionally. This is what is done by Zero-base budgeting. It is not necessary, however,
that each and every program be reviewed afresh or restructured anew every year under the
zero-base budgeting, though such necessity might arise in case of some of the programs.
But it does require that programs should not go unscruitnished in any case for a long period.

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Such budgeting is a new technique of bringing the spending agencies under a regular
scrutiny and accountability. Zero-base budget, therefore, acts as a constant reminder of the
necessity of utmost efficiency in public expenditure and in resource allocation programs.
iii) Plan and non-plan budgets. Most of the underdeveloped and developing countries
pursue planned economic development through periodic plans. The basic aim of economic
planning is to achieve repaid development in different sectors like agriculture, industry,
power, transport, etc. and to raise per capita income, remove poverty, unemployment and
regional disparity so that social justice can be achieved. Ethiopia practices five-year plans.
A part of the budgetary receipts and expenditures is devoted to the administration and
implementation of the plans. The part of budgetary receipts which goes to finance the plan
expenditure and the outlays on planned developmental heads constitute the plan budget,
while the remaining part of the budgetary resources and expenditures is referred to as the
‘Normal’ or ‘Non-plan budget.’
iv) Balanced and Unbalanced Budget. Government budget may be balanced or
unbalanced. Unbalanced Budget may be either a surplus budget or a deficit budget. When
the government revenues are equal to government expenditures, the budget is balanced
and when they are not equal, the budget is unbalanced. P. E. Taylor explains the nature of
budget balance in the following terms. (a) A budget is balanced if during the budget period
revenue receipts are exactly equal to cost payments. (b) If revenue receipts for the budget
period are greater than cost payments, the difference is budget surplus and (c) if revenue
receipts for the budget period are less than cost payments, the difference is budget deficit.
In the advanced countries, a balanced budget is pursued at a time when the economy
suffers neither from inflation nor from unemployment or depression so that the objective
of maintaining full employment with price stability is achieved. When the economy suffers
from inflation, a surplus budget is operated while a deficit budget is pursued when the
economy suffers from unemployment. The developing and underdeveloped countries
suffer normally from idle resources and, to make their proper use, additional expenditures
are incurred and, hence, they mostly pursue deficit budgets.

5.4 Modern Classification of Budget

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There are many governmental functions on which expenditure is planned in the budget.
To get a fuller picture of the various implications of budget frame, a proper analysis is
necessary. Modem budgeting recognizes this need and attempts to classify the budget from
different analytical angles. The Economic Commission for Asia and Far East explains this
necessity in the following words. The systems of classification provide information on the
working of budgetary process. Since such a process has a multitude of functions and
objectives, different types of classification are needed, either singly or in combination, to
serve the purpose of appropriation, program management and review, evaluation of plan
implementation, and financial and economic analysis. The various ways in which the
public sector transactions can be classified are (a) by organization, (b) by object, (c) by
function, (d) by their economic character, (e) by program and (f) by origin of the purchases
affected by the government.
Accordingly, from different analytical view points, we may classify the budget in the
following ways.
i. Functional Classification. A better idea of government expenditure is obtained
from functional classification since it goes by purpose of expenditure rather than
by departments of government. As the United Nations says, “It classifies public
expenditure by specific governmental function such as defense, health, education,
promotion of agriculture, etc”.
Since the resources of government are limited and since the functions of
government are many, the latter are essentially competing objectives. Therefore, it
is important to determine the extent of budgetary resources that can be earmarked
for each of these purposes of public expenditure. This is what the functional
classification does.
ii. Economic Classification. Economic classification seeks to categorize the
government receipts and expenditures into different classes of economic
significance so that the pattern of resource allocation and its impact on the rest of
the economy can be readily grasped. This classification shows how expenditure
for a particular purpose, say, health, is divided between such classes of economic
significance as current expenditure on goods and services, capital formation,
current transfers, capital transfers and loans. It also shows how expenditure

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 belonging to a particular category, say, capital formation, is designed to serve
different purposes. Obviously, such classification provides important macro-
economic information that are essential for construction of national accounting
data.
Economic classification broadly categorizes public expenditure into two classes,
viz., current expenditure and capital expenditure. Current expenditure is divided
into three classes each of which, again, is sub divided into four classes, as shown
in the following table.
Table 5.1 Current and Capital Budget
1. Current Expenditure 1. Capital Expenditure
a. Consumption expenditure a. Gross capital formation
b. transfer payment b. Capital transfers
c. Total current expenditure c. Investment in shares
(a + b) d. Loans and advances
a. Consumption Expenditure e. Repayment of public debt
i. Salaries and wages Total capital expenditure
ii. Goods and services = (a + b + c + d + e)
iii. Less outside sales a. Gross capital formation
iv. Net consumption i. Buildings and other
expenditure construction
= (i) + (ii) – (iii) ii. Machinery and equipments
a. Transfer payment iii. net increase in stock
i. Interest payment Total G.C.F = (i) + (ii) + (iii)
ii. Grants to local bodies b. Capital transfers
iii. Subsidies i. Grants for capital formation to
iv. Income account of household total bodies
Total transfer payment = ii. Other capital transfers
(i + ii + iii + iv) Total cap. Transfers = (i) + (ii)
c. Loans and advances
i. Capital formation
ii. Current consumption
Total = (i) + (ii)

Similarly, capital expenditure is divided into five classes. viz., gross capital
formation, capital transfers, investment in shares, loans and advances and
repayment of public debt. Again gross capital formation, capital transfers and loans
and advances are also sub-divided into more significant categories as shown in the

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 table.
v. Program Budgeting Classification. Under this classification, the budget would
frame a program structure to attain a particular objective and specify spending to
attain it. We may think of all those expenditures allocated to the set of programs
under a particular objective as belonging to a total spending agency which is
responsible for attainment of the objective. If, for example, the objective is poverty
removal, these expenditures would constitute the poverty removal program. It is
important to note that since these expenditure agencies are inter-related, some
programs expenditure would draw support from a number of agencies. To explain
the anatomy of program budgeting, let us take the following example.
Table 5.2 General Objective: Poverty Removal
1. Current Expenditure 1. Capital Expenditure
Specific objective No.1 Increase of earning capacity
programs a. Elementary and secondary education
program
b. Enrollment incentive program
c. Teachers training program
d. Adult literacy program
e. Vocational education program
f. Labor mobility program
g. Skill formation program
h. Job placement program
Specific objective No. 2 Income maintenance
Programs a. Employment insurance program
b. Social security programs like retirement and
disablement benefits
c. Consumption subsidy program
d. Public distribution program
e. Price support program etc.
Specific objective No. 3 Community Improvement program
Programs a. Low income housing program
b. Area development program
c. flood control program
d. consumers’ co-operative program
e. market improvement program
Specific objective No. 4 Agriculture Improvement Program
Programs a. Input supply program
b. Irrigation improvement program
c. Flood control program
d. Land reforms program

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 e. Agriculture wage restructuring program, etc

In this way, there may be as many specific objectives as would be helpful in securing the
general objective of purpose. A more detailed program budgeting will break down each of
these programs into what are known as program elements. For example, 'Enrolment
Incentive Program' may be broken down into such program elements as (a) supply of
school uniform, (b) free tuition and free supply of books, (c) scholarship scheme and (d)
mid-day meal scheme. Such a program element is considered as the smallest unit of
analysis. A fully developed system of program budgeting requires expenditure to be
allocated against each of these program elements.
vi. Performance Budgeting Classification. The scientific treatment to budget
making is well demonstrated in the program and performance budgeting. The
approach is essentially managerial in outlook. Burkhead defines performance
budget as one which presents the purposes and objectives for which funds are
requested, the costs for program proposed for achieving these objectives and
quantitative data measuring the accomplishments and work performance under
each program
The difficulty of functional budget to detect whether the anticipated benefits from
expenditure is really materialized is overcome by the performance budget. Its main
purpose is to measure the benefits and to relate them to costs incurred. The targets
to be achieved during the budget period are set as objectives. Thus, a determination
of attaining a specific amount of benefit from a particular outlay inevitably takes
into consideration some sort of cost-benefit analysis on the basis of either past
performance or comparative study of the relevant market situation.
In the mixed economy of developing countries where a part of the budget is
concerned with planned development programmes and a time bound achievement
of objectives is all the more necessary, the role of performance budgeting is
paramount. This classification also helps to detect the pockets of inefficiency in
administration as well as resource allocation so that corrective steps may be
designed to improve the efficiency level of administering and executing the
development programs.

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 5.5 Budget as an Instrument of Economic Policy

Government budget is an important instrument of economic policy in both developed and

developing countries. In the developed countries, the economy operates at full
employment level and, hence, there does not exist unemployed resources. But the
economy is subjected to trade cycle and, therefore, occasionally faces the problems of
depression or unemployment and inflation or pressure of excess purchasing power. In the
underdeveloped countries, the economy operates at less than full employment level and,
hence, the main problem is how to attain economic growth. In these poor countries,
growth process is faced with a number of problems. They are allocational, distributional
and stabilisational. Budget serves as an important device to achieve economic
development in these countries also. The following are the important ways in which the
government budget can influence the economy of a country.
(1) Revenue Raising Device. The government requires enough revenue to discharge its
fiscal responsibility. Modern countries have increasingly become welfare states with larger
and larger state activities coming under the fold of public sector. Hence, resources have to
be found in sufficient quantity. Budget secures this purpose through a financial plan. The
receipts side of the budget clearly mentions the sources and the extent of funds for the
purpose of financing state activities.
(2) Building of Economic Overheads. The main reason of underdevelopment, of the poor
countries is absence of proper economic infrastructure. Without proper transport and
communication system, large scale generation of electric power, establishment of basic and
key industries and proper training facilities for workers and entrepreneurs, industrial
development is not possible. Similarly, agricultural production and productivity cannot
improve in the absence of proper irrigation facilities, flood control measures, technological
improvement with research and development activities, etc. These facilities must be
provided by the government. The cost of supplying these services is heavy and cannot be
raised directly from the beneficiaries. Therefore, these facilities are supplied free of direct
charges through the budgetary provisions. Thus, budget has a tremendous influence on the
industrial and agricultural development.
(3) Diversion of Resources to More Useful Production. Free market mechanism leads to
production of those goods which give maximum profit to private enterprises. Hence private

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investment is generally concentrated on the production of luxury commodities. It is,
therefore, necessary to divert resources to the production of more useful goods and
services, particularly of the kind of mass consumption ones. This can be done by
government interference through the budget. Imposition of heavy tax on harmful and less
essential goods and tax exemption or tax concessions granted to more essential goods and
services can divert resources to the production of right kind of goods and services. Grant
of facilities through budgetary expenditure can also do the same job.
(4) Proper Allocation of Resources. Most efficient allocation of resources is given by the
equality between marginal cost and price which is possible only under perfect market
conditions. Underdeveloped countries seriously suffer from malallocation of resources.
The general market conditions in private sectors are set by existence of monopoly,
monopolistic competition and oligopoly. To correct this misallocation, the government
has to interfere either in the form of production subsidy or supply of goods and services
by public authorities so that the gap between average revenue (i.e. price) and the marginal
cost is reduced as far as possible. This is the reason why the heavy investment public
welfare industries which are subjected to decreasing cost conditions are increasingly
coming under the fold of public sector.
(5) Balanced Development. Underdeveloped countries suffer from regional imbalance in
economic development. Left to the private sector which is motivated by profit
maximization, the industries will be located in the urban and already-developed areas. The
government can correct this geographical imbalance by setting up public sector industries
in backward areas. Moreover, the development of agriculture and small scale and village
industries can be secured through government patronage in the form of supply of
infrastructure facilities and various incentive or subsidy measures. This will develop the
economy of rural areas.
(6) Income and Employment. Since underdeveloped countries are low income economics,
people live in poverty and, hence, saving and investment is very low. Income of the people
can be increased only through increased productivity and production. Budgetary provisions
can go a long way to achieve this. When agricultural technology is improved through
budgetary program, the income of the people engaged in agriculture rises. People get
gainful employment in the sector. Improvement in small scale industries in the rural areas

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and setting up of public sector industries in the backward regions will increase employment
opportunities in these industries. The budgetary provisions of employment-related tax
concessions can influence creation of employment opportunity in the private sector also.
(7) Saving and Investment. In underdeveloped countries, the level of saving and
investment is very low. Moreover, without increased saving and investment, economic
growth cannot be achieved. Due to low level of income, marginal propensity to consume
is very high and, hence, the mass people cannot save. Public saving is, therefore, necessary.
Taxation of various types serves this purpose. The saving and investment of private
individuals are also influenced by the savings-investment-related tax concessions and other
budgetary subsidy program. Capacity and willingness to work, save and invest of the
people is increased through various human capital formation measures and creation of
employment opportunities. These are all done through budgetary expenditures.
(8) Poverty Removal. Poverty removal program is a part and parcel of the budget in
underdeveloped countries. All expenditure measures are designed in such a way that they
directly or indirectly influence reduction of poverty in the economy. Thus, when
budgetary resources are spent on account of education, whether general or technical and
vocational or on health measures, land reforms, flood control and irrigation, etc, an
important objective is to remove poverty of people. Direct budgetary program for poverty
removal are those of increasing employment opportunities and creation of community
assets like employment insurance, social security, consumption subsidy, public
distribution system and price support program, low-income housing, area development,
input supply, agricultural wage restructuring, etc.
(9) Full Employment and Price Stability. An important function of the budget is to secure
the objective of full employment and price level stability. We have seen how this should
be done in the case of depression and inflation. When the economy, on the other hand,
suffers from neither inflation nor deflation, the budget is to maintain full employment and
prevailing prices through judicious program of public expenditure and taxation. In this
case, a balanced budget is helpful in developed countries. In the underdeveloped
economies where resources are not fully employed public expenditure programmes and
tax incentive measures are put into operation to secure full employment.
(10) A Check to Misuse of Public Funds. Since budget is a financial plan relating to

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 public revenues and public expenditures for the budgeted period, it imposes definite
restraints on the tax gatherer and public funds spender. The legislature and the people
know from the study of budget how the revenues will be raised and how will they be
spent. Revenue mobilization and public expenditure activities will be put to scrutiny of
the legislature and also of the members of public. In case of inefficiency or misuse in the
task of budgetary performance, the executive agencies will be accountable. This will
definitely put a check on the improper use and mishandling of public funds.

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