What is meant by a tax expenditure in public finance?
Correct answer: B. Revenue forgone through special tax provisions
- A. A government payment to collect taxes
- B. Revenue forgone through special tax provisions
- C. The administrative cost of tax collection
- D. Interest paid on tax-related borrowing
Explanation
A tax expenditure is revenue the government does not collect because of exemptions, deductions, credits, reduced rates or other concessions. It functions like an indirect government subsidy through the tax system, not as a collection cost.
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About Public Finance
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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