Q. Consider the following statements:
1.Intergenerational equity is about ensuring that all generations have equal opportunities and outcomes.
2.If a government covers its expenses with tax revenue, future generations will have to pay higher taxes.
3.In developing states, households pay less in taxes than the value of public services they receive.
4.The Finance Commission (FC) prioritizes efficiency over equity while deciding tax revenue distribution formula for States.
How many of the statements given above are correct?
Explanation –
Statements 1 and 3 are correct. Intergenerational equity ensures fairness and justice between generations, aiming to provide equal opportunities and outcomes for present and future generations. In public finance, intergenerational equity implies that each generation should pay for the public services it uses, rather than passing on the burden to future generations through borrowing. In developing states, households often pay less in taxes than the value of the public services they receive, with the gap being filled by higher financial transfers from the Union government.
Statements 2 and 4 are incorrect. If a government covers its expenses with tax revenue, it means the current generation is paying for the services they receive, avoiding the need for future generations to pay higher taxes. However, if the government borrows to cover expenses, future generations will have to pay higher taxes to repay this debt, leading to intergenerational inequity. The Finance Commission prioritizes equity over efficiency in its distribution formula to ensure fair redistribution of tax revenue among states.
Source: The Hindu
