Which of the following represents government's redistributive function ?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Progressive income taxation
Under its redistribution function, the government collects taxes and makes transfers. This changes the income households have to spend, and so moves the distribution of income towards what society considers fair.
Option (1) Progressive income taxation — Correct. Under a progressive tax, the rate rises as income rises. So people with higher incomes pay a larger share, and the gap in incomes after tax becomes smaller.
Option (2) Contraction of money supply in an economy — Incorrect. This is a step to reduce total demand (aggregate demand) in the economy. It does not decide who gets what share of income.
Option (3) Expansion of money supply in an economy — Incorrect. This is the opposite step, used to raise total demand. It too does not aim at the shares of income.
Option (4) Increase in spending of private economic agents — Incorrect. Households and firms decide this spending. It is not a function of the government budget, though it affects aggregate demand.
NCERT (2026-27): “Redistribution Function of Government Budget … The government sector affects the personal disposable income of households by making transfers and collecting taxes. It is through this that the government can change the distribution of income and bring about a distribution that is considered ‘fair’ by society. This is the redistribution function.… Stabilisation Function of Government Budget …The government may need to correct fluctuations in income and employment. The overall level of employment and prices in the economy depends upon the level of aggregate demand which depends on the spending decisions of millions of private economic agents apart from the government. These decisions, in turn, depend on many factors such as income and credit availability.… 5.1.2 Classification of Receipts …The redistribution objective is sought to be achieved through progressive income taxation, in which higher the income, higher is the tax rate. Firms are taxed on a proportional basis, where the tax rate is a particular proportion of profits.…” |