Public expenditure

MEANING











MEANING
DEFINITION
CLASSIFICATION OF PUBLIC EXPENDITURE
CAUSES FOR THE GROWTH OF PUBLIC EXPENDITURE

MEANING
DEFINITION
CLASSIFICATION OF PUBLIC EXPENDITURE
CAUSES FOR THE GROWTH OF PUBLIC EXPENDITURE

1. PUBLIC FINANCE UNIT 2 PUBLIC EXPENDITURE DONE BY BENCY PRISCA.

2. Public Expenditure MEANING OF PUBLIC EXPENDITURE - Public expenditure  is the expenditure incurred by the public authorities to satisfy those common wants which the people in their individual capacity are unable to satisfy efficiently.

3. Definition, Public expenditure can define as,  “The expenditure incurred by public authorities like central, state and local governments to satisfy the collective social wants of the people is known as public expenditure. ”

4. OBJECTIVES OF PUBLIC EXPENDITURE 1) Maximize social and economic welfare (2) Control on depressionary tendency (3) Accelerate the economic development ( 4) Better distribution of income

5. PUBLIC EXPENDITURE IN ECONOMIC DEVELOPMENT Role of public expenditure in economic development: (1) Building economic overheads (2) Balanced regional growth (3) Development of agriculture and industry (4) Developing mineral resources (5) Rural development (6) Lessen inequalities of income and wealth.

6. Classifications: According to the authority which spends the money viz ; Federal or Union or Central expenditure. State or Provincial expenditure, and. Local expenditure or expenditure of municipalities and other local bodies

7. According to the object of expenditure viz ; Development activities like providing subsidies, electric power, transport service, welfare activities, employment opportunities, and price stability, etc. Non-developmental activities like money spent on administrative machinery, law and order, interest payment on public debt and defense , etc.

8. According to the nature of expenditure via; Revenue Expenditure, and . Capital Expenditure. Revenue Expenditure is current expenditure e.g. administrative and maintenance expenditure Capital Expenditure. e.g. expenditure for building multipurpose projects or a setting up big factories like steel plants, money spent on land, machinery, and equipment

9. Types of Public Expenditure: Capital Expenditure of the government refers to that expenditure which results in the creation of fixed assets. They are in the form of investment. They add to the net productive assets of the economy For example;  Expenditure, on agricultural and industrial development, irrigation dams, public -enterprises, etc, are all capital expenditures.

10. Revenue expenditures Revenue expenditures  are current or consumption expenditures incurred on civil administration , defense forces , public health and , education , maintenance of government machinery, etc.

11. Development expenditure Expenditure on infrastructure development, public enterprises or development of agriculture increase productive capacity in the economy and bring income to the government. Thus they are classified as a productive expenditure. All expenditures that promote economic growth development are termed as development expenditure.

12. unproductive expenditures. Unproductive expenditure refers to those expenditures which do not yield any income. Expenditure such as interest payments, expenditure on law and order, public administration, do not create any productive asset which brings income to the government such expenses are classified as unproductive expenditures.

13. Transfer expenditure Transfer expenditure refers to those kinds of expenditures against there is no corresponding transfer of real resources i.e., goods or services . Such expenditure includes public expenditure on; National Old pension Scheme, Interest payments, subsidies, unemployment allowances, welfare benefits to weaker sections, etc . By incurring such expenditure, the government does not get anything in return, but it adds to the welfare of the people, especially to weaker sections of society.

14. The Non-transfer expenditure The Non-transfer expenditure relates to that expenditure which results in the creation of income or output. Economic infrastructure (Power, Transport, Irrigation, etc.), Social infrastructure (Education, Health and Family Welfare), Internal law and order and defense , public administration, etc . By incurring such expenditure, the government creates a healthy environment for economic activities.

15. The plan expenditure The plan expenditure incurs on development activities outlined in the ongoing five-year plan. In 2009-10, the plan expenditure of the Central Government was 5.3% of GDP. Plan expenditure incurs on Transport, rural development, communication, agriculture, energy, social services, etc.

16. The non-plan expenditure The non-plan expenditure incurs on those activities, which are not included in the five-year plan . It includes development and Non-development expenditure. It includes; Defence, subsidies, interest payments, maintenance, etc.

17. Growth of Public Expenditure 1. The New Concept of Welfare State: The 19 th  century state was mainly and basically a ‘police state’ primarily interested in the protection of the citizens from foreign ag­gression and in maintaining law and order within the country. Mod­ern states are not police states, but welfare states. The belief of the classical economists, in the efficacy of Laissez-fair capitalism in maintaining full employment and economic stability has been falsi­fied

18. 2.  War and National Defence: In most countries the heaviest increase in public expenditure has been on account of cost of war and preparedness for war. The larger the country, the greater the percentage of resources allocated to national defence. War and rumors of war between countries have forced them to be armed at all time and to get prepared to face a war situation

19. 3 . Population Growth: Along with growth in num­bers, the responsibilities of government relating to the provision of basic services have increased considerably. The state will have to bear additional responsibility of solving problems like food, unem­ployment, housing, sanitation, street lighting, drinking water, drain­age etc.

20. 4. Growth of Democratic Institutions: Today almost majority of nations have accepted the principle of de­mocracy. Democratic institutions exert structural compulsions on public expenditure. The growth of democracy in the political system of any country requires maintenance of political institutions like periodic elections, at different layers of government, the legislatures, advisory council, local boards etc. and other grass root level admin­istrative units.

21.  5. Provision of Economic Over Head: For the development of a nation, creation and maintenance of eco­nomic overhead facilities is imperative. Provision of these facilities like well-developed transport and communication, generation of electric power etc. requires heavy capital investment

22. 5. Provision of Economic Over Head: For the development of a nation, creation and maintenance of eco­nomic overhead facilities is imperative. Provision of these facilities like well-developed transport and communication, generation of electric power etc. requires heavy capital investment.

23. 6. The Problem of Urbanization: Population explosion leads to urbanization and resulted in the growth of metropolitan centers throughout the world. Urbanization is creat­ing major hurdles to the all-round development of the economic sys­tem. Urban settlements are creating a number of socio-economic problems to the state, which need huge investment by the central, state and municipal bodies to address these problems.

24. 7. Rising Trend in Price Level: Another factor pushing public expenditure ahead, at present, is the inflationary trend in price level. Rise in price level affect government expenditure in two ways. DA

25.  8. Adoption of Planning: Almost all countries have now basically accepted the principle of planned economic development. Economic planning is considered as a panacea for all economic evils like poverty, deprivation, unem­ployment etc. planning is considered as an instrument to achieve certain socio-economic objectives.

26. 9. Education and Human Capital Formation: The overall development of a country depends on the quality of human capital. In developing countries, responsibilities of human capital for­mation are primarily on the government. This is due to the wide­spread poverty of the people.

27. 10. Modernization of Agriculture: Most of the developing countries are basically agrarian economics. Growth of agriculture is necessary, not only to achieve self-suffi­ciency in food production, but also to provide adequate support to agro-based industries by providing required raw-materials

28. 11 . Industrial Development: Industrialization leads to increase in national income and promotes the standard of living of the people. However for rapid industrializa­tion, the involvement of the public sector is crucial. To industrialize the country the government has to develop basic and key industries.

29. 12. Provision of Public Goods and Utility Services: Public goods are those, the consumption of which is externalized. It is consumed equally by all. These goods have no private market. Defence, and police service, justice, roads, irrigation, flood control projects, public parks etc. are all examples of public goods

30. 13. Servicing of Public Debt Public debt constitutes a substantial part of the government revenue; a major part of mounting government expenditure is met from public borrowing.

31. # 14. Protection from the Maladies of Market Mechanism: In all welfare states, government is the ultimate custodian of public welfare. It is bound to keep a constant vigil on the abuses of free market mechanism like malpractices by dishonest traders, black marketing, hoarding, monopoly practices and consumer exploitation

32. 15.  Maintenance of Law and Order: In tune with the growth of population urbanization and complexities of modern economic and socio-political life, law and order problem became more complex. Terrorism has become an international and national phenomenon threatening the law and order situations of nations across the world.