<–2/”>a >Public expenditure is spending made by the government of a country on collective needs and wants such as pension, provision, Infrastructure-2/”>INFRASTRUCTURE, etc. Until the 19th century, public expenditure was limited as laissez faire philosophies believed that Money left in private hands could bring better returns.
In Democracy, public expenditure is an expression of people’s will, managed through Political Parties and institutions. At the same time, public expenditure is characterised by a high degree of inertia and law-dependency, which tempers the will of the current majority.
Main objective of Public expenditure is to reduce the inequality of income. Expenditure on old age pensions, Unemployment relief, free Education, free mid-day meals etc. benefits the poorer classes of the community at the expense of the rich.Other objectives are:-
1. Provide social goods
2. Remove unemployment
3. Increase Production
4. Exploitation and Development of Mineral Resources
5. Promote Price Stability
6. Promote Balanced Growth
7. Reduce Inequality of Income
Wagnar’s law or “The Law of Increasing State Activity” states that “as the economy develops over time, the activities and functions of the government increase”.
According to Adolph Wagner, “Comprehensive comparisons of different countries and different times show that among progressive peoples (societies), with which alone we are concerned; an increase regularly takes place in the activity of both the central government and local governments constantly undertake new functions, while they perform both old and new functions more efficiently and more completely. In this way economic needs of the people to an increasing extent and in a more satisfactory fashion, are satisfied by the central and local Governments.”
Wagner explained his theory based on following bases:-
- During industrialization process, public sector activity will replace private sector activity. State functions like administrative and protective functions will increase.
- Governments needed to provide cultural and welfare Services like education, public Health, old age pension or retirement insurance, food subsidy, natural disaster aid, environmental protection programs and other welfare functions.
- Increased industrialization will bring out technological change and large firms that tend to monopolize. Governments will have to offset these effects by providing social and merit goods through budgetary means.
Colin-Clark forwarded his view through “PUBLIC FINANCE and changes in the value of Money” about the growth of public-expenditure. According to them the share of government sector exceed 25% of the total economic activity in the economy, Inflation occurs even in the balanced budget. In this connection his opinions are;
“When the government’s share of the aggregate economic activities reaches the critical limit of 25% the community behavior pattern changes and people produces less since incentive are harmed by the fact that increasing proportions of additional income must be paid in taxes under progressive tax system.”
Dalton’s Principle of Maximum Social Advantage – maximum satisfaction should be yield by striking a balance between public revenue and expenditure by the government. Economic welfare is achieved when marginal utility of expenditure = marginal disutility of Taxation. He explains this principle with reference to
- Maximum Social Benefit (MSB)
- Maximum Social Sacrifice (MSS)
Peacock and Wiseman analyze the process of growth of public expenditure in terms of three different but related concepts; displacement, inspection and concentration effects. By the empirical analysis of the data of Britain on public expenditure, they were able to establish the relative growth of public sector expenditure in that country occurred on “step-like” pattern rather than on “continuous growth” pattern.
Musgrave and Rostow’s Development Model suggested that the growth of public expenditure might be related to the pattern of economic growth and development in societies. Three stages in the development process could be distinguished:
(a) The early development stage where considerable expenditure is required on education and on the infrastructure of the economy (also known as social overhead capital) and where private saving is inadequate to finance this necessary expenditure (in this stage, government expenditure must thus be a high proportion of total output);
(b) The phase of rapid growth in which there are large increases in private saving and public Investment falls proportionately; and
(c) High income societies with increased demand for private goods which need complementary public investment (e.g. the motor car and Urbanisation).
In recent years government expenditure is increasing faster than their ability to raise resources, because now their activities are not so restricted as only to maintain law and order and protect the country against external aggression. Therefore, when expenditure exceeds revenue, a deficit arises in the budget of the government. This deficit can be bridged by raising the revenue from taxation (by increasing the existing rates or by imposing new taxes) or by borrowing from the public. Both in developed and developing countries there are certain limits beyond which the taxation rates cannot be raised without adverse effects on the investment level or production and consequently on the rate of economic growth. Further, it taxes the rich and the poor alike which is not desirable for the welfare of any community.
Public Debt
Public debt is the total financial obligations incurred by the entire public sector of a nation, including guarantees and implicit debt. Public debt would include obligations evidenced by a legal instrument issued by the Central, State, Municipal, or Local Government or Enterprises owned or controlled by the Government; and other entities considered public or quasi public.
Internal debt refers to rupee-denominated debt, consisting of marketable securities (dated securities, Treasury Bills) and non-marketable securities (14 days Intermediate Treasury Bills, compensation and other Bonds, securities issued to international financial institutions etc.).
External Debt refers to the debt raised by the Union Government from non-domestic sources, namely, multilateral institutions like the International Bank for Reconstruction and Development (IBRD), International Development Association (IDA), Asian Development Bank (ADB) etc. or bilateral sources, i.e., directly from the foreign countries.
Liabilities in the Public Account (referred to as ‘other liabilities’) include National Small Savings Fund (NSSF), Provident Funds, Reserve Funds and deposits and special bonds issued to oil Marketing companies, fertilizer companies and Food Corporation of India. ‘Other liabilities’ are not included in the public debt.Total liabilities reported in the budget documents of the Central Government have been adjusted so that the outstanding debt truly reflects the outcome of fiscal operations of the Central Government.,
Public expenditure is the total amount of money that a government spends in a given year. It includes spending on goods and services, such as education, healthcare, and infrastructure, as well as Transfer Payments, such as social security and unemployment benefits.
There are three main types of public expenditure:
- Consumption expenditure: This is spending on goods and services that are used up in the current period, such as salaries for government employees and purchases of office supplies.
- Investment expenditure: This is spending on goods and services that will provide benefits in the future, such as construction of roads and bridges.
- Transfer payments: This is spending on goods and services that are not directly consumed by the government, but are instead given to individuals or businesses, such as social security payments and subsidies to farmers.
Public expenditure management is the process of planning, BUDGETING, accounting, and Auditing public expenditure. It is important to manage public expenditure effectively in order to ensure that it is used efficiently and effectively to meet the needs of the people.
Budgeting is the process of setting financial targets for the government for a given period of time. The budget is a statement of the government’s expected revenues and expenditures for the coming year. It is used to allocate resources among different government programs and to control spending.
Accounting is the process of recording and reporting financial information about the government. The government’s financial statements provide information about the government’s revenues, expenditures, assets, liabilities, and net worth.
Auditing is the process of reviewing and evaluating the government’s financial statements to ensure that they are accurate and reliable. The government’s auditor is responsible for providing an independent opinion on the government’s financial statements.
Public debt is the total amount of money that a government owes to its creditors. It can be divided into two main categories:
- Internal debt: This is debt that is owed to domestic creditors, such as banks and individuals.
- External debt: This is debt that is owed to foreign creditors, such as governments and international organizations.
Public debt can be caused by a number of factors, including:
- Cyclical factors: Public debt can increase during economic downturns, as governments spend more money to stimulate the economy.
- Structural factors: Public debt can also increase due to long-term structural problems, such as an aging Population or a decline in economic growth.
- Discretionary factors: Public debt can also increase due to government decisions to spend more money on programs or to cut taxes.
Public debt can have a number of consequences, including:
- Economic consequences: High levels of public debt can crowd out private investment, reduce economic growth, and increase inflation.
- Financial consequences: High levels of public debt can make it difficult for governments to borrow money, and can lead to higher interest rates.
- Political consequences: High levels of public debt can lead to political instability, as governments may be forced to make unpopular decisions in order to reduce the debt.
There are a number of ways to manage public debt, including:
- Debt consolidation: This involves combining multiple debts into a single loan with a lower interest rate.
- Debt restructuring: This involves negotiating with creditors to reduce the amount of debt or the interest rate.
- Debt forgiveness: This involves writing off some or all of the debt.
The best way to manage public debt depends on the specific circumstances of the country. However, it is important to take steps to reduce the debt as soon as possible, in order to avoid the negative consequences of high levels of debt.
What is public expenditure?
Public expenditure is the total amount of money that a government spends on goods and services, including transfer payments. It is a major component of the NATIONAL INCOME and can have a significant impact on the economy.
What are the different types of public expenditure?
There are three main types of public expenditure:
- Current expenditure: This is money spent on goods and services that are consumed in the current period, such as salaries, wages, and pensions.
- Capital Expenditure: This is money spent on assets that will last for more than one year, such as roads, bridges, and schools.
- Transfer payments: This is money that is given to individuals or businesses without any expectation of a return, such as social security payments and unemployment benefits.
What are the benefits of public expenditure?
Public expenditure can have a number of benefits, including:
- Stabilizing the economy: Public expenditure can be used to smooth out the business cycle by increasing spending during recessions and decreasing spending during booms.
- Providing public goods and services: Public goods and services, such as national defense, law enforcement, and education, are essential for a well-functioning Society.
- Redistributing income: Public expenditure can be used to redistribute income from the rich to the poor, which can help to reduce inequality.
What are the costs of public expenditure?
Public expenditure can also have a number of costs, including:
- Crowding out private investment: When the government spends more money, it can crowd out private investment by making it more expensive for businesses to borrow money.
- Inflation: If the government spends too much money, it can lead to inflation, which can erode the value of savings and make it more difficult for businesses to plan for the future.
- Government debt: When the government spends more money than it takes in, it has to borrow money, which can lead to a large government debt.
What is the optimal level of public expenditure?
The optimal level of public expenditure is the level that maximizes the benefits of public expenditure while minimizing the costs. This is a difficult question to answer, as there is no single answer that will be appropriate for all countries and all circumstances.
What are some of the challenges of managing public expenditure?
Some of the challenges of managing public expenditure include:
- Controlling inflation: When the government spends too much money, it can lead to inflation, which can erode the value of savings and make it more difficult for businesses to plan for the future.
- Managing government debt: When the government spends more money than it takes in, it has to borrow money, which can lead to a large government debt.
- Corruption: Public expenditure can be a source of corruption, as officials may be tempted to use public funds for their own personal gain.
- Inefficiency: Public expenditure can be inefficient, as it may be spent on projects that are not well-designed or that do not deliver the desired results.
What are some of the reforms that have been implemented to improve public expenditure management?
Some of the reforms that have been implemented to improve public expenditure management include:
- Introducing performance budgeting: Performance budgeting is a system of budgeting that focuses on the results of government spending, rather than the inputs.
- Strengthening public financial management systems: Public financial management systems are the systems that governments use to track and control their spending. Strengthening these systems can help to improve the efficiency and effectiveness of public expenditure.
- Decentralizing public expenditure management: Decentralizing public expenditure management can help to improve the accountability of government officials and make it easier to target public spending to those who need it most.
- Introducing citizen participation: Citizen participation can help to ensure that public expenditure is responsive to the needs of citizens.
Question 1
Public expenditure is the total amount of money that a government spends in a given year. It includes spending on goods and services, transfer payments, and interest payments on the national debt.
Which of the following is not a component of public expenditure?
(A) Spending on goods and services
(B) Transfer payments
(C) Interest payments on the national debt
(D) Taxes
Answer
(D) Taxes are not a component of public expenditure. Taxes are revenue that the government collects from individuals and businesses. They are used to finance public expenditure.
Question 2
Public debt is the total amount of money that a government owes to its creditors. It includes both short-term and long-term debt.
Which of the following is not a factor that can affect the level of public debt?
(A) The size of the government’s budget deficit
(B) The interest rate on government debt
(C) The level of economic activity
(D) The government’s tax revenue
Answer
(D) The government’s tax revenue is not a factor that can affect the level of public debt. Tax revenue is used to finance public expenditure, but it does not directly affect the level of public debt.
Question 3
There are two main types of public debt: internal debt and external debt.
Internal debt is debt that is owed to residents of the country in which the government is located. External debt is debt that is owed to residents of other countries.
Which of the following is an advantage of internal debt?
(A) It is less risky for the government to borrow from its own citizens.
(B) It is easier for the government to repay internal debt.
(C) Internal debt does not affect the exchange rate.
(D) All of the above.
Answer
(D) All of the above are advantages of internal debt. Internal debt is less risky for the government to borrow from its own citizens because the government is more likely to be able to repay its debts to its own citizens. It is also easier for the government to repay internal debt because it can simply print more money. Internal debt does not affect the exchange rate because it is denominated in the same currency as the government’s other liabilities.
Question 4
There are two main ways to reduce public debt:
(1) Increase government revenue.
(2) Decrease government expenditure.
Which of the following is an example of a policy that would increase government revenue?
(A) Raising taxes
(B) Cutting taxes
(C) Increasing the number of government employees
(D) Decreasing the number of government employees
Answer
(A) Raising taxes is an example of a policy that would increase government revenue. When taxes are raised, the government collects more money from individuals and businesses. This money can then be used to finance public expenditure or to reduce the public debt.
Question 5
There are two main ways to finance public expenditure:
(1) Taxation
(2) Borrowing
Which of the following is an example of a policy that would finance public expenditure through borrowing?
(A) Selling Government Bonds
(B) Borrowing from the International Monetary Fund
(C) Raising taxes
(D) Cutting taxes
Answer
(A) Selling government bonds is an example of a policy that would finance public expenditure through borrowing. When the government sells bonds, it is essentially borrowing money from individuals and businesses. The government then uses this money to finance public expenditure.