Your assignment is to prepare and submit a paper on cost benefit. What do you believe are the opportunity costs of reducing expenditures (such as on education and social services programs) compared to the option of raising taxes? What do you think are the rational choices in such a situation?

Making economic decisions require a delicate balancing act between alternatives because choosing a .particular course of action often requires giving up another option and thus incurring an opportunity cost. Economic decision becomes more complex in the case of government where there a lot of things to consider with varying needs and priorities that has to be addressed.

In the case stated, reducing expenditures compared to raising taxes have various repercussions even if both course of action are unpopular. Reducing expenditures meant foregoing the opportunity to serve the people and to provide services that could potentially prevent future problems. For example, health care programs could make the population healthier with an implication of lesser health cost in the future. In the case of education, reducing its expenditures may not be immediately felt but it will undermine the country’s competitiveness in the future because it would mean having less educated workforce.

Raising taxes however is unpopular. But it will enable the government to fund its social services such as health and education. Excessive taxation however invites social unrest that could defeat its intent to provide services to the people. The repercussion of high taxation is political as policy makers may lose public support and will no longer win in elections.

Ultimately, governments have to balance between increasing taxes and reducing social services. Ideally, taxes should be low and social services should be high but that would not be possible since social services is expenditure and it needs income through taxes to fund it. This explains why social services and taxation should be balanced.

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