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Difficulty: MediumMeaning and Objectives of Public Finance

In public finance, the stabilization objective of government fiscal policy is primarily directed toward reducing income inequalities between high- and low-income households through progressive taxation.

Answer: Answer

Answer

False. Reducing income inequality is the primary goal of the distribution function of public finance, whereas the stabilization function aims to manage macroeconomic fluctuations such as inflation and unemployment.
The statement is false because narrowing the gap between the rich and the poor is the central goal of the distribution function of public finance. The stabilization function is instead targeted at macro-level balance, such as controlling inflation, sustaining economic growth, and achieving full employment.

Step-by-Step Solution

1
Analyze the specific goal presented in the statement.
The statement describes using progressive taxation to lessen income gaps among households.
Identifying the target outcome helps determine which core objective of public finance is being described.
2
Classify the outcome under the standard objective functions of public finance.
Promoting equity and redistributing income falls under the distribution function. The stabilization function deals with economic cycles, unemployment, and inflation control.
Public finance distinguishes clearly between resource allocation, income distribution, and macroeconomic stabilization.

Key Concept

Distinction between the distribution function and stabilization function of public finance
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Topics

Meaning and Objectives of Public Finance

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