13. Discuss the role of government budget in economic stability.

1. Allocation of resources: Public goods (defence, roads), merit goods (education, health), and corrective taxes/subsidies to fix externalities.

2. Redistribution of income: Progressive taxation, transfers, and social welfare reduce inequality.

3. Stabilization: Counter-cyclical fiscal policy—raise spending/cut taxes in recessions; restrain spending/raise taxes in booms—to manage output, employment, and inflation.

4. Growth and development: Capital expenditure on infrastructure and human capital crowds in private investment.

5. Automatic stabilizers: Income tax and unemployment benefits smooth shocks without new legislation.

Conclusion: A well-designed budget supports efficiency, equity, and macroeconomic stability through targeted spending, prudent deficits, and credible fiscal rules.