Question

Government functions can be classified according to the following categories: Regulation, Allocation, Distribution and stabilization. Describe each category briefly with the use of example

Answer 1

Abstract

Let us understand the role and some basic funtion of Governement while dealing with the strategic decisions about Economy, Politics and Legal aspects of country

A government is an institution through which leaders exercise power to make and enforce laws.

A government's basic functions are providing leadership, maintaining order, providing public services, providing national security, providing economic security, and providing economic assistance to every citizen of the Country.

We will see the government function brodely that is divided into four main catergories : Which is regulatory, Allocation, Distribution and Stabilization

1) Regulatory Function

Regulatory agencies serve two primary functions in government: they implement laws and they enforce laws.

Regulations are the means by which a regulatory agency implements laws enacted by the legislature.

Regulatory agencies use a specific procedure to create and implement regulations.

For Example : Regulation involves enforcement by public sector agencies of controls and restrictions on certain activities such as the MSP (Minimum Selling Price for Agriculture Commodity)

It can also refer to third-parties that are contracted by government to perform regulatory functions; for example, state agencies may outsource assessment functions.

2) Allocation Function

The allocation function is that part of government tax and expenditure policy which is concerned with influencing the provision of goods and services in the economy.

This means creating conditions to promote competition among producers, as well as the welfare of consumers.

For Example: National Defence, Public Parks and National Highways are developed by the governement by doing the necessary arrangement of fund and collecting taxes from citizens in form of income tax.

3) Distribution Function

The government through its tax and expenditure policies attempts to bring out income redistribution in the society that is fair to all.

The government transfer payments from one citizen to other through taxation policy.Those with higher income paying higher taxes and those with lower income paying lower taxes.

For Example: Old age pensions, Social sector initiatives for the poor. --Through these programs, the government provides income support to those individuals who do not have any source of earnings.

The funds for running these programs comes from progressive taxation.

4) Stabilization Function

Stabilization of the economy in term of full employment, control of inflation, and an equitable balance of payments is one of the goals that governments attempt to achieve through manipulation of fiscal and monetary policies.

With the stabilization function government always attempt ot control the fluctuations in domestic prices, incomes, and employment functioned as the levers for bringing about equilibrium in the balance of payments.

Occasionally governments attempted to reduce the impact of this mechanism on the domestic economy, particularly on the price level.

For Example, Fiscal policy can do this by increasing or decreasing aggregate demand, which is the demand for all goods and services in an economy.