government performs five major functions that affect the allocation of
resources and the distribution of goods and services.
These functions include administering the legal system, regulating
market activities, providing public goods and services, redistributing
income, and stabilizing the economy.
redistribution of income through expenditure and tax policy is based upon
an equity argument that greater equality of wealth and income is beneficial
to society. Income is redistributed
by the government either through in-kind transfers or by direct cash payments.
Cash payments are provided to individuals through social insurance
programs. These payments
are based either on the amount of one's contributions to the programs
or on one's need. For example,
Social Security, which accounts for over 20% of all federal government
expenditures, and unemployment compensation payments are related to the
recipients' prior contributions to these programs.
Other cash payment programs, such as aid to families with dependent
children, supplemental security income, and earned income tax credits
also use individuals' earned income as the payment criterion.
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