Explain the role of Government budget in allocation of resources.

Through the budgetary policy, Government aims to allocate resources in accordance with the economic (profit maximisation) and social (public welfare) priorities of the country. Government can influence allocation of resources through:

(i) Tax concessions or subsidies:
To encourage investment, government can give tax concession, subsidies etc. to the producers. For example, Government discourages the production of harmful consumption goods (like liquor, cigarettes etc.) through heavy taxes and encourages the use of ‘Khaki products’ by providing subsidies.

(ii) Directly producing goods and services:
If private sector does not take interest, government can directly undertake the production.