If people understand how policy operates, its effect on the real economy will be much weaker. All those expenditures of Government which promote economic growth are called developmental expenditure. In India, the Government has been providing subsidies on food, fertilizers, exports and education, and expenditure on them has been increasing at a rapid rate which is the main cause of large fiscal deficit in India. . Types of Public Expenditure : Public expenditure may be classified into developmental and non-developmental expenditures. Or we may examine the sociology or politics of fiscal behavior, explaining the forces that determine actual expenditure policy in the prevailing historical and institutional context.
Goods and services expenditure This relates to obtaining, disposing of, or using goods and services that are not covered by the terms and conditions of employment. Emphasis has been placed by Giinter Schmolders 1955 on the psychological basis of taxpayer behavior, and various attempts have been made— including those by Downs 1957 , Buchanan and Tullock 1962 , and Black 1958 —to explore the consequences of party behavior and majority voting. Owing to these developmental activities of the Government in India, the proportion of developmental expenditure to the total Government expenditure has greatly increased. Expenditure occurs on every level of government, from local city councils to federal organizations. Thus, if the government spends a larger part of the national income on defence, less will remain with the people for their own personal consumption, thereby leading to a reduction in their standard of living. 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. Wicksell foresaw the possibility that a fiscal mechanism guided by majority voting could lead to the exploitation of the rich by the poor, thereby reversing the earlier concern of social reformers.
In countries like India which have socialistic tendencies the public sector plays an important role in promoting economic growth and development. Not only public utility services such as water supply, electricity, post and petroleum and transport services have been undertaken by the public sector, but also the Government has invested a huge sum of resources in industrial and agricultural development of the economy. Eckstein, Otto 1961 A Survey of the Theory of Public Expenditure Criteria. The legislator acts by representing his constituents and is elected by exhibiting a platform more or less reflecting their preference patterns. The New-classical approach is highly critical of relying on past events to predict the future.
It is important to note that redistributive effects of public expenditure must be considered in the light of how it is financed. It must not be confused with the fiscal problem of allocating resources between the satisfaction of social wants and the satisfaction of private wants. Keynesian macroeconomics provides a theoretical basis for recent developments in public expenditure programmes in the developed countries. London and New York: Macmillan. Upgrades to Equipment In the manufacturing industry and other industries, machinery used to produce goods may become obsolete or simply wear out. This works by increasing the level of and can compensate for failings in other components of aggregate demand, such as a fall in on consumer goods and firms spending on capital goods.
Notwithstanding its wide and sustained popularity, the ability-to-pay approach has severe shortcomings. Agriculture is also an industry which receives large government subsidies. Thus, public expenditure can prevent periodic cyclical fluctuations. If the aim of public spending is to create jobs, there is the strong possibility that prices will be driven-up, and any growth in jobs will only be temporary as the economy quickly readjusts to the previous level of unemployment. Findlay Shirras has laid down the following four canons of public expenditure: i Canon of benefit ii Canon of economy iii Canon of sanction iv Canon of surplus i Canon of Benefit: According to this canon, public spending has to be made in such a way that it confers greatest social benefits.
It spends money for providing various social security benefits. It may be noted that, till recently, expenditure on education and health were regarded as non-developmental type. They have now become Welfare States. So, it is imperative that the government undertakes such projects. In democracy, public expenditure is an expression of people's will, managed through political parties and institutions.
Efficiency in public expenditure requires economy of expenditures. Private-sector transfers include charitable donations and prizes to lottery winners. At the same time, it must be granted that complete separation is not possible. As the table suggests, the United States spent nearly 3 times as much on the military than , the country with the next largest military spending. What is equally, if not more, important is the purpose of such expenditure.
This makes sense where matters of national concern, such as defense policy, are at stake. Such costs include lost productivity including from incoming personal e-mails and phone calls and the direct cost of the technology. Highways and planes may be provided for publicly, yet be purchased from private construction or aviation companies. When the government spends more than it takes in taxes and other sources of revenue, it increases the deficit and can lead to higher interest rates, which means that individuals and small businesses wanting loans or credit will need to pay more for that privilege. Payments that are made without any good or service being received in return.
Too large inequalities in income distribution as produced by the free working of market system are not only socially unjust, but also not conducive to the maximisation of social output. Thus, besides raising the level of production, the Government expenditure can influence the pattern of production or composition of output. Galbraith, John Kenneth 1958 The Affluent Society. The principle requires that the revenue collected from the tax-payer should be judiciously spent. This will be made clear a bit later. As too much public expenditure leads to inflation and adversely affects savings, economy in government expenditure is cardinal.