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CA Foundation · Business Economics · Public Finance

According to Musgrave's classification of the functions of government, which function is performed when the government uses taxes and transfer payments to reduce inequality in the distribution of income and wealth?

This is the distribution function. In Musgrave's classification, the government adjusts the distribution of income and wealth through progressive taxation, subsidies and transfer payments, so that the outcome is fairer than what the market alone would produce.

  1. AAllocation function
  2. BDistribution functionCorrect
  3. CStabilisation function
  4. DRegulation function

Explanation

Musgrave classified government functions into allocation, distribution and stabilisation. Using progressive taxes and transfers to correct inequality in income and wealth is the distribution function. The allocation function concerns providing public goods and correcting market failure in resource use.

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