|government economic policy
by which a government attempts to influence the economy. The national budget generally
reflects the economic policy of a government, and it is partly through the budget that the
government exercises its three principal methods of establishing control: the allocative
function, the stabilization function, and the distributive function.
Over time, there have been
considerable changes in emphasis on these different economic functions of the budget. In
the 19th century, government finance was primarily concerned with the allocative function.
The job of government was to raise revenue as cheaply and efficiently as possible to
perform the limited tasks that it could do better than the private sector. As the 20th
century began, the distribution function acquired increased significance. Social welfare
benefits became important, and many countries introduced graduated tax systems. In the
later interwar period, and more especially in the 1950s and '60s, stabilization was
central, although equity was also a major concern in the design of tax systems. In the
1970s and '80s, however, the pendulum swung back. Once more, allocative issues came to the
fore, and stabilization and distribution became less significant in government finance.