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1. What revenue control and management policies does your country have in place? 2. If you are...

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Accounting

1. What revenue control and management policies does yourcountry have in place?

2. If you are an advisor to the Accountant General, what wouldyou advise her to do to enhance your countries revenue control?Why?

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1 Government economic policy measures 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 The Allocative Function The allocative function in budgeting determines on what government revenue will be spent Because a high proportion of national income is now devoted to public expenditure allocation decisions become more significant in political and economic terms At all times and in all countries the calls for expenditure on specific services or activities or for more generous transfer payments will always exceed the amount that can reasonably be raised in taxation or by borrowing The debate about how these scarce resources should be allocated has continued for hundreds of years and although numerous methods of deciding on priorities have emerged it has never been satisfactorily resolved In practice most democracies contain a number of different factions that disagree on the proper allocation of resources and indeed the proper level of public sectorinvolvement in the economy the frequent change of national governments is related to the constant search for the right answers Public goods Economists have sought to provide objective criteria for public expenditures through the socalled theory of public goods It is generally recognized that some goods needed by the public cannot be provided through the private market Lighthouses are a classic example The costs of a lighthouse are such that no one shipowner will want to finance it on the other hand if a lighthouse is provided for one shipowner it can be made available to all for no additional cost Indeed it must be available to all since there is no practical means of excluding ships from using the facility provided by the lighthouse even if their owners have refused to pay for it The only practical method of providing such services is by collective action If goods are to be provided in this way rather than through the private market it is immediately necessary to confront the twin problems of deciding how much to provide and who should pay for that provision Even if all individuals wanted the service equallyas perhaps with lighthousestheir views on the extent of the service would be influenced by the allocation of the costs Where different households may have different preferences and some may not want the service at allas for example with defense by nuclear weaponsthese difficulties are compounded Economists have tried to devise abstract voting schemes that would reconcile these difficulties but these appear to have little practical application Moreover others would challenge this whole approach to the problem It would be absurd to say that the consumer has a taste for national defense and that it is the job of the government to satisfy it The task of national leaders is to evolve a defense policy and persuade the public to accept it Similarly conservationists must attempt to awaken the public to the importance of parks and wildlife In the context of public policy the efficient allocation of resources consists not merely of distributing funds in the pursuit of given objectives but also involves determining the objectives themselves Genuine public goods pose severe problems for the national budget it is very difficult to decide how far particular goodsthe arts national parks even defenseshould be supplied and therefore no formal procedure of determination is likely to evolve What should be given to each will continue to be the subject of intense political debate with allocation changing as the government changes Merit goods The concept of merit goods assists governments in deciding which public or other goods should be supplied Merit goods are commodities that the public sector provides free or cheaply because the government wishes to encourage their consumption Goods such as subsidized housing or social services which predominantly help the poor or health care services which help the poor and elderly are generally regarded as having considerable merit and therefore have a strong claim on government resources Other examples include the provision of retraining schemes or urban regeneration programs Costbenefit analysis Once decisions have been made on how the limited national budget should be divided between different groups of activities or even before this public authorities need to decide which specific projects should be undertaken One method that has been used is costbenefit analysis This attempts to do for government programs what the forces of the marketplace do for business programs to measure and compare in terms of money the discounted streams of future benefits and future costs associated with a proposed project If the ratio of benefits to costs is considered satisfactory the project should be undertaken Satisfactory means among other things that the project is superior to any available public or private alternative Or if funds are limited public investment projects may be assigned priorities according to their costbenefit ratios One difficulty with costbenefit analysis is that every government agency has an incentive to estimate favourable ratios for its own projects It must after all compete with other agencies for funds No one can be certain as to the returns to be expected from an irrigation canal or a highway Private investors have also been known to exaggerate their claims in appealing to stockholders but they are generally subject to market sanctions that encourage them to err on the side of caution In addition to the possibility that costbenefit analysis may be biased by the preformed views of those commissioning the study there are other more fundamental difficulties Almost all proposals have effects that are difficult to value in monetary terms The siting of a new airport brings problems of noise and property blight to local people and increases the risk that civilians may die in an accident Putting a sensible value on human life has been a continuing difficulty for those carrying out costbenefit analyses even though every project does in fact affect probabilities of life and death These problems are of course not confined to costbenefit analysis Additional expenditure on health service or on road safety or better housing or heating old peoples homes in winter all affect the number of people who die prematurely The failure of costbenefit analysis to provide answers to the problems of valuing life or the quality of life is a reflection of the wider problem confronting all decisions on public expenditure the influence of subjective judgment Public ownership and privatization Until the mid1970s the proportion of economic activity controlled by the government and the share of taxes in national income tended to increase in most countries Since then however challenges to this growth in the role of government have become increasingly influential and moves to privatization have been common There are several types of privatization One involves the sale to private owners of stateowned assets and this is most correctly called privatization Publicly owned houses may be sold to their occupants Commodity stockpiles may be reduced or disbanded Increasingly however attention has been turned to the sale of publicly owned industries thus reversing the move to nationalization that occurred particularly in western Europe around and after World War II Where the privatized industry operates in a competitive environment no new problems arise Singapore has privatized its airline system for example which now competes with a mixture of privately and publicly owned international airlines Where privatization occurs but monopoly continues however there are new difficulties Both Japan and the United Kingdom have privatized their telecommunications networks Although in certain limited areas of telecommunications competition is possibleand has been allowed to develop in both the United States and Britaintechnical and legal restrictions inhibit competition in many sectors of the industry Regulation is necessary therefore to restrict the freedom of privatized monopolies or near monopolies to raise prices and to exploit consumers in other ways In the United States which has by far the longest history of regulating private utilities such regulation has normally limited the rate of return that they earn to what is considered a fair level A disadvantage of this is that it may give the industry no greater incentive to increased efficiency than would exist in public ownership since higher costs can be passed directly onto consumers There have been experiments therefore with other forms of regulation which seek to strike a balance between incentives for better performance and the ability to exploit consumers A further problem for such regulation is that utilities and similar industries normally operate in both competitive and monopoly markets They may be inclined to use    See Answer
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1. What revenue control and management policies does yourcountry have in place?2. If you are an advisor to the Accountant General, what wouldyou advise her to do to enhance your countries revenue control?Why?

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