Theories of public expenditure. Public Expenditure: Meaning, Importance, Classification and Other Details 2018-12-21

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Theories of Public Expenditure

theories of public expenditure

Are there actually any goods which can be described by this definition? For private goods, the total quantity con­sumed is equal to the sum of the quantities consumed by the individuals, so that where the superscript refers to individuals and subscript to commodities. It is mandatory on the part of the government to incur obligatory expenditure. Through public expenditure the Government redistributes income in favour of the poor. Musgrave, a well-known twentieth century economist advocated and brought out significance of public household. Neither of excess is good for the society, it has to be balanced to achieve maximum social benefit. An obvious objection to this classification is that all public ex­penditure is for the common and public interest. While other expenditures arose as a result of technological development and expansion of government activity into new areas.

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Public Expenditure and Economic Growth: A Review of Theoretical and Empirical Literature. / Bowale Ebenezer / Profiles / Home

theories of public expenditure

Public expenditure should aim at reducing the inequalities of wealth distribution. Th e demand for such pub lic goods becomes an imp ortant elemen t i n the determin ation of public expen diture. Pigou says that expenditure of money by government authori­ties may be conveniently separated under two heads, expenditure that purchase current service of productive resources for the use of these authorities and expenditure which consist in payments made either gratuitously or in purchase of existing property rights to pri­vate persons. Hence the classical economists never fully appreciated the importance and advantages of public expenditure. This displacement effect does not require that the new higher plateau of expenditure, con­tinue the same expenditure composition that was created by the social disturbance. From simple aggression, the modern warfare shifted to prevention of attack and use of sophisticated weapons. Hence public expenditure in the form of subsidies and grants is helpful in directing the resources of the people to establish new industries as well as to accelerate production of existing industries.

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Public expenditure

theories of public expenditure

In what follows, we shall study the types of public expenditure, the causes of growth of public expenditure and its effects on production, distribution and economic growth in both the devel­oped and the developing countries. Therefore, the increase in urbanisation in India has tended to increase the government expenditure. He then set out to test his hypothesis by examining the industrialization process in various European countries and Japan. Please shows that the governments in developing countries raised the level of tax revenue in order to increase the rate of domestic saving through higher level of public saving. It may be in the form of cash grants-old age pensions, unemployment benefit, sickness and accident benefit.

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Theories of Public Expenditure

theories of public expenditure

Regressive, Proportional and Progressive Public Expenditure: Regarding the distributive impact of public expenditure much de­pends on the nature of public expenditure and the policy underlying it. The modern Governments have therefore to incur a lot of expenditure on social security measures such as old age pensions, unemployment allowances, sickness benefits. Not all types of public expenditure reduce inequalities in income distribution. At the end of his tenure, he gained faith from the people that he protected the economy through micro-monetary management. An oth er reaso n is the dec entralisation of administration an d the increase i n the exp enditure of local bodies. Firstly, it i s not easy to qua ntitatively measu re the benefits flowing from divers e.

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Public Expenditure: Meaning, Importance, Classification and Other Details

theories of public expenditure

Public goods us uall y correspon d t o all goods and ser vices provided by gov ernmen t and include a w ide varie ty of goods and servi ces. Main objective of Public expenditure is to reduce the inequality of income. It is in line with the objective of employment that in India, the Government has taken over several private sick mills and incurs a lot of expenditure on them so that workers employed in them are not rendered unemployed. Robinson classified public expenditure into productive and un­productive. Thus, besides raising the level of production, the Government expenditure can influence the pattern of production or composition of output.

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Pure Theory Of Public Expenditure, Theory of market failure, Assignment Help

theories of public expenditure

But once the level of full employment is attained the increase in Government expenditure cannot raise production through raising aggregate demand. Revenue account include ordinary source of income and expenditure. So a displacement effect i s created when the earlier lower tax an d expen diture levels are displ aced by new an d higher budgetary levels. Further, it will be in a step like manner. It cites that Obama's budget summary has proposed to move the funds for transportation programs out into a year-to-year discretionary. Similar is the case with expenditure on internal protection and administration.

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Public Expenditure : Theories of public expenditure; causes of growth of public expenditure and its impact on economy; internal and external borrowings.

theories of public expenditure

Such services imply a net addition to the income of the poorer classes. 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? 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. It is worthwhile to mention that whereas in case of transfer payments, it is the beneficiaries that decides about the use of resources, in the case of non-transferable type of expenditure, the Government itself decides about the use of real resources, especially whether they are to be used for consumption or investment purposes. During the period of emergency or of major social disturbances such as war and depression that most of the upward steps in public expenditure had occurred. In order to compensate for this shortfall in private investment, the Government has to step up its expenditure on public works.

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Public Expenditure and Economic Growth: A Review of Theoretical and Empirical Literature. / Bowale Ebenezer / Profiles / Home

theories of public expenditure

T he hypothesis put forward is that publi c expe nditure grows due to growth in revenue. Being labour-intensive, the growth of these industries generates a large number of employment opportuni­ties which improve income distribution. The scale of government activities such as providing education, public health, roads and transport facilities has to increase in harmony with the growth of population. Extensive increase relates to coverage of new welfare functions. This required increasing government expen­diture on education, public health, low cost housing, subsidized pro­vision of food, agricultural inputs, old age pension, sickness benefit etc. Whereas public expenditure is unproductive if it does not add to enhancing the productive capacity of the nation. Several steel plants, multipurpose irrigation projects, fertilizer factories, coal mining, explo­ration and production of oil and petroleum, different kinds of machine-making industries and chemical plants have been started and are being operated in the public sector.

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11 Main Principles of Public Expenditure

theories of public expenditure

Hence public expenditure should be regulated in such a way that it may not adversely affect the incentive to work of the people. Public expenditure means the expenditure on the developmental and non-developmental activity such as construction of roadways and dams, and other activity. In the case of a private good, we carry out horizontal summation of individual demand curves. Economic Growth and Development: The most important factor in developing countries such as ours that has led to a phenomenal increase in public expenditure is the expansion in developmental activities of the Government. Dalton observes that system of public expen­diture is the best, which has the strongest tendency to reduce the inequalities of income. It is important to note that redistributive effects of public expenditure must be considered in the light of how it is financed. The underlying principle is why should a person work hard and save, when he knows fully, that he will be looked after by the government when he is not in a position to earn any income.

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WICKSELL AND LINDAHL: THEORIES OF PUBLIC EXPENDITURE AND TAX JUSTICE RECONSIDERED

theories of public expenditure

In this way public expenditure can pro­mote ability to work, save and invest and thereby production and employment. Thirdly, it is not only the level o f present satisf actions of the 'Community' that a government wil l be con cerned with. This classi­fication provides a more detailed breakdown of revenue and capital expenditures of the government. Apart from the above mentioned factors, Wagner also examined the forces that operate on both the demand and supply side of public sector activity and explained how they interact. Hence the diversion of resources from private to public sector for the con­struction of basic infrastructure and for preservation and conserva­tion of scarce resources is very essential for economic development. Now, need for active intervention of the Govern­ment has been increasingly felt.

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