Government Budget is a statement showing estimated government expenditures and receipts during a financial year.
Government can encourage production of selected goods and services by providing tax concessions. For example, electricity generation etc. Government can also give subsidies to enterprises who are willing to undertake production in backward areas etc. In this way government budget can be used to influence allocation of resources in the country. Increasing taxes and reducing subsidies will have the opposite effects.
Detailed Answer:
Government Budget is an annual statement, showing item-wise estimates of receipts and expenditures during a fiscal year.
Reallocation of Resources:
(i) The government aims to reallocate resources according to economic and social priorities through its budgetary Policy.
(ii) Government encourages the production of certain commodities by giving subsidies or tax reliefs. For e.g. government encourages the use of 'khadi products' by providing subsidies.
(iii) Government can discourage the production of harmful goods like liquor or cigarettes, by imposing heavy excise duties or taxes. In India, we use progressive taxation, i.e., higher taxes from rich people and distribute these receipts through various welfare activities.
