UGC-NET (June 2025) · India · National Testing Agency
Original practice questions written to the published syllabus · not past papersHow governments raise and spend money, who really bears a tax, and how budgets, fiscal policy and public debt serve development.
In the exams: agricultural economics PhD entrance and fellowship examinations, public finance (present)
UGC-NET Economics
Public economics at postgraduate level: public goods and Lindahl equilibrium, optimal taxation (Ramsey, Diamond-Mirrlees), measures of progressivity, Harberger incidence, fiscal federalism and Finance Commissions, debt sustainability.
How our questions for UGC-NET spread across the units of Public Finance. Difficulty: 20 easy, 41 medium, 26 hard.
| Sources of public revenue | 16 | |
| Tax incidence | 16 | |
| Public and private finance compared | 13 | |
| Public debt | 11 | |
| Public expenditure | 10 | |
| Principle of maximum social advantage | 8 | |
| Fiscal policy for development | 8 | |
| Government budgets | 5 |
Choose an answer, then open the working. Each explanation says why the right answer is right and why the others are not.
Within the expenditure side of the budget, Dalton's principle requires that
C. the marginal social benefit of the last unit spent be equal in every use
Efficient allocation equalises marginal, not total, benefits across uses; otherwise moving a unit from a low-margin to a high-margin use raises welfare. Equal shares or equal totals ignore margins.
Further reading: Dalton, Principles of Public Finance
The pre-tax Gini coefficient of income is 0.40 and the concentration coefficient of tax payments is 0.55. The average tax rate is 20 percent. Ignoring re-ranking, the Kakwani index and the approximate Reynolds-Smolensky redistributive effect are
B. 0.15 and 0.0375
Kakwani = 0.55 - 0.40 = 0.15 (positive, so progressive). Without re-ranking, RS = t/(1 - t) x K = 0.2/0.8 x 0.15 = 0.0375. Treating K as the redistributive effect ignores the small average rate; adding the coefficients gives 0.95, and 0.19 applies the 20 percent rate to it; reversing the subtraction gives negative values.
Further reading: Musgrave and Musgrave, Public Finance in Theory and Practice
Nicholas Kaldor argued that the most efficient way to tax agriculture in developing countries was
B. a tax on the potential output of land, assessed on productive capacity rather than actual output
Kaldor favoured a tax based on potential output: it does not penalise extra effort, falls on a factor in fixed supply and encourages use of idle land. A tax on actual output or turnover discourages production; export taxes distort crop choice.
Further reading: Kaldor, essays on taxation in developing countries
Under Musgrave's principles of tax assignment in a federation, which revenue source is best suited to local governments?
A. Taxes on land and immovable property, and user charges
Local bases should be immobile and benefits local, so property taxes and user charges fit. Progressive income taxes invite migration of the rich; customs and concentrated resource revenues create large regional disparities and suit the centre.
Further reading: Oates, Fiscal Federalism (1972)
A budgeting method that requires every programme to be justified afresh each year, rather than from the previous year's allocation, is
C. zero-based budgeting
Zero-based budgeting, associated with Peter Pyhrr, starts every programme from zero. Line-item and incremental budgeting build on last year's inputs; performance budgeting classifies spending by programmes and outputs but does not require restarting from zero.
Further reading: Stiglitz and Rosengard, Economics of the Public Sector
Progressive income taxes and unemployment benefits that raise the deficit in a recession without any new decision by government are called
C. automatic stabilisers
Automatic stabilisers respond to the cycle through existing rules. Discretionary policy needs a new decision; crowding out and Ricardian offsets reduce the effect of fiscal policy rather than describe stabilisers.
Further reading: Rosen and Gayer, Public Finance
In the Harrod-Domar model, a country with a capital-output ratio of 4 wants to grow at 6 percent a year. The required savings (investment) rate is
D. 24 percent of GDP
g = s/v, so s = g x v = 0.06 x 4 = 0.24. Dividing (6/4 = 1.5) or adding (4 + 6 = 10) are common slips.
Further reading: Thirlwall, Economic Growth and Development
Short-term government borrowing such as treasury bills is classified as
A. floating debt
Short-term debt that must be rolled over frequently is floating debt; long-term or undated debt is funded debt. Treasury bills may be held by residents, so they are not necessarily external.
Further reading: Dalton, Principles of Public Finance
Ricardian equivalence, revived by Barro, states that under certain conditions
D. a debt-financed tax cut leaves private spending unchanged, as households save for the implied future taxes
Forward-looking households linked by bequests and without borrowing constraints treat debt as deferred taxes, so private saving rises by the tax cut. Most empirical work finds only partial equivalence.
Further reading: Barro, 'Are Government Bonds Net Wealth?' (1974)
Replacing high-interest government debt with new debt at a lower interest rate is called
D. conversion
Conversion lowers the interest cost of existing debt. Refunding issues new debt to repay maturing debt (not necessarily at lower interest); repudiation is refusal to pay; a capital levy is a one-time wealth tax to redeem debt.
Further reading: Dalton, Principles of Public Finance
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