Theories of public expenditure. Aspects of Public Expenditure Theories on JSTOR 2022-11-02
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Public expenditure refers to the spending of government funds on goods and services that benefit the public. There are several theories that attempt to explain the motivations behind public expenditure and the optimal levels of spending.
One theory is the public goods theory, which suggests that certain goods and services are non-rival and non-excludable, meaning that they can be consumed by multiple individuals simultaneously and it is difficult to exclude individuals from consuming them. Examples of public goods include national defense and street lighting. The public goods theory suggests that the government should provide these goods because the private market is unable to do so efficiently.
Another theory is the redistribution theory, which suggests that the government should use public expenditure to redistribute wealth and income from the rich to the poor in order to reduce income inequality and promote social welfare. This can be achieved through progressive taxation and the provision of welfare services such as healthcare and education.
The fiscal federalism theory focuses on the allocation of public expenditure between different levels of government. It suggests that the government should decentralize the provision of certain goods and services to the local level in order to increase efficiency and accountability. For example, schools and roads are often provided by local governments because they are more familiar with the needs of their communities.
The public choice theory takes a more skeptical view of government spending. It suggests that politicians and bureaucrats may be motivated by self-interest rather than the public good, leading to the waste and inefficiency in public expenditure. This theory emphasizes the need for strong checks and balances, such as budget constraints and transparency, to prevent abuse of public funds.
In conclusion, there are several theories that attempt to explain the motivations behind public expenditure and the optimal levels of spending. These theories include the public goods theory, the redistribution theory, the fiscal federalism theory, and the public choice theory. Each of these theories offers valuable insights into the complex issue of public expenditure and can help policymakers make informed decisions about the allocation of government funds.
Public Expenditure: Meaning, Classification and Effects
He categorized public expenditure into a Constant expenditure and b Variable expenditure. Hence a perfect and systematic classification of public expenditure is very difficult to achieve. We shall now explain these effects in detail; a Ability to Work, Save and Invest : Public expenditure can influence ability to work, save and invest either favorably or unfavorably. When the real per capita output of public goods remains at the same proportion of total economic activity, i. This study, therefore, analysed the behaviour of government expenditure in Nigeria and formulated an econometric model, which was estimated with vector autoregressive technique, among others.
Similarly, cross-section the result reveals that taxation had the effect of discouraging private consumption and that positive effect of taxation in promoting aggregate saving had been neutralized by the behaviour of current expenditure in the public sector. This is because; there is little agreement between authorities of public finance regarding the best way of arranging the various kinds of state outlays. It is mandatory on the part of the government to incur obligatory expenditure. Using empirical data for the British economy after 1890, Wiseman and Peacock observe that the relative growth of the public sector in the United Kingdom has followed a discrete step like pattern rather than a continuous growth pattern. They divided public expenditure under the following four heads: a Firstly, expenditure which confers common benefit on all citizens or taxpayers, example: defence, universal education given to the residents free of charge etc. This in turn will benefit public revenue considerably. All along the PG 2 the proportion of resources devoted to the output of public goods is expanding overtime.
The scope of government activities would continue to increase both absolutely and relative income for many years. Problem ii has been solved. Investments in shares and loans and advances granted by the central government are part of this. Expansion of Traditional Functions : ADVERTISEMENTS: Traditional functions mainly include defence, administration of justice, maintenance of law and order and provision of social overheads. It can, if time warrants can be postponed to a future date.
ADVERTISEMENTS: The need and necessity to provide social and merit goods through budgetary allocation was increasingly recognized by the modern state. ADVERTISEMENTS: This article throws light upon the top three theories for the analysis of public expenditure growth. Just as there are proportional progressive and regressive taxes, in the same manner, government grants may be proportional, progressive and regressive. Defence outlays on men, materials and maintenance have been on a rising trend in modern times. Therefore, when expenditure exceeds revenue, a deficit arises in the budget of the government. Plan and Non-Plan Expenditure : Plan expenditure means the current development outlays as well as investment outlays. Intensive increase means expansion of traditional functions of the state on a large scale.
In this formulation, individuals bargain over the level of public goods supply, simultaneously with the distribution of the cost between them. MEANING: Public expenditure refers to Government expenditure i. Historically there are two divergent views, regarding the scope of public expenditure. Old age pension and expenditure on social insurance are progressive. Empirical evidence indicates the hypothesis of continuous upward trend in government activities. Whereas non-plan expenditure refers to the expenditure which the government is bound to incur and cannot do without it.
Obviously the functional relationships Wagner sought to trace are complex. This can be shown for a two-person community consisting of A and B in Fig. Percentage changes in the Greek drachma with respect to the German mark, the French franc, the Italian lira and Japanese yen are predictable using past information. At the same time we would not start from the positive assertion that all public expenditure is good. Wiseman — Peacock hypothesis appears to be quite relevant. This attempt has resulted in a higher increase in government consumption and a much lower increase in public saving through increased spending on public investment. Similarly, public expenditure on social overheads like education, training, public health etc.
Public Expenditure : Theories of public expenditure; causes of growth of public expenditure and its impact on economy; internal and external borrowings.
Unproductive expenditure is one which is consumed in the process of rendering the service. In this graph the real per capital output of public goods PG is measured on the vertical axis and real per capita income Y is measured on the horizontal axis. According to Dalton a broad distinction may be drawn between public expenditure designed on the one hand to preserve the social life of the community against violent attack whether external or internal and on the other, to improve the quality of the social life. Progressive expenditure can assume different forms. Criteria for just taxation had developed independently of any analysis of the expenditure side of the public budget.
Theories of Public Expenditure ~ Santosh Acharya's Blog
In such case, there is no change in existing inequalities of income distribution. It is not compulsory in nature. Dalton thinks that interest on public debts and pensions are grants if looked at from the point of view of the present, as in the present the state secure no commodity or service by incurring this expenditure. Until just lately, faculties and universities largely rely on both custom-developed programs which can be more than 15 years outdated, or have transitioned to industrial products from distributors like Oracle, SAP, PeopleSoft or distributors like SunGard which can be geared towards the higher education market. Wagner based this generalization on two considerations: a The income elasticity of demand for services provided by the government is greater than unity. Reduction of glaring inequalities in the distribution of income, provision of certain minimum basic facilities to the weaker sections of the community is now rightly regarded as the primary social functions of any modern government. ADVERTISEMENTS: In these two very short papers Samuelson posed and partly solved the central problems in the normative theory of public expenditure: i How one can define goods analytically that are consumed collectively, that is for which there is no meaningful distinction between individual and total consumption? But up to a certain point, this is not the case.
The provision of free residence only to higher paid government employees and not to low paid employees is a typical example of regressive expenditure. The public expenditure increases and makes the inadequacy of the present revenue quite clear to everyone. It is worth emphasizing that these terms do not prejudge the respective tasks of the private and public sectors; the analysis at this stage is institution-free and can best be considered as representing the problems of a planner who knows the production possibilities of the economy, the preferences of the consumers and his own ethical values. Variable expenditure is that which increases with every increase in the uses of public services by the people, whose benefit it is incurred. Satisfaction of special benefit may lead to generation of common benefit. Then there will be incentives to exaggerate the willingness to pay and a consequent tendency towards over-supply.
