What is Public Expenditure ?
Meaning, Definition
Public expenditure refers to Government expenditure i.e. Government spending. It is
incurred by Central, State and Local governments of a country.
Public expenditure can be defined 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."
Throughout the 19th Century,
most governments followed laissez faire economic policies & their functions
were only restricted to defending aggression & maintaining law & order.
The size of pubic expenditure was very small.
But now the expenditure of governments all
over has significantly increased. In the early 20th Century, John Maynard Keynes advocated
the role of public expenditure in determination of level of income and its
distribution.
In developing countries, public expenditure
policy not only accelerates economic growth & promotes employment
opportunities but also plays a useful role in reducing poverty and inequalities
in income distribution.
Classification of Public
Expenditure
Classification of Public expenditure refers
to the systematic arrangement of different items on which the government incurs
expenditure.
Different economists have looked at public
expenditure from different point of view. The following classification is a
based on these different views.
1. Functional Classification
Some economists classify public expenditure
on the basis of functions for which they are incurred. The government performs
various functions like defence, social welfare, agriculture, infrastructure and
industrial development. The expenditure incurred on such functions fall under
this classification. These functions are further divided into subsidiary
functions. This kind of classification provides a clear idea about how the
public funds are spent.
2. Revenue and Capital
Expenditure
Revenue expenditure are current or
consumption expenditures incurred on civil administration, defence forces,
public health and education, maintenance of government machinery. This type of
expenditure is of recurring type which is incurred year after year.
On the other hand, capital expenditures are
incurred on building durable assets, like highways, multipurpose dams,
irrigation projects, buying machinery and equipment. They are non recurring
type of expenditures in the form of capital investments. Such expenditures are
expected to improve the productive capacity of the economy.
3. Transfer and Non-Transfer
Expenditure
A.C. Pigou, the
British economist has classified public expenditure as :-
1.
Transfer expenditure
2.
Non-transfer expenditure
Transfer Expenditure :-
Transfer expenditure relates to the
expenditure against which there is no corresponding return.
Such expenditure includes public
expenditure on :-
1.
National Old Age Pension
Schemes,
2.
Interest payments,
3.
Subsidies,
4.
Unemployment allowances,
5. 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 belong to the weaker sections of the society. Such
expenditure basically results in redistribution of money incomes within the
society.
Non-Transfer Expenditure :-
The non-transfer expenditure relates to
expenditure which results in creation of income or output.
The non-transfer expenditure includes
development as well as non-development expenditure that results in creation of
output directly or indirectly.
1.
Economic infrastructure
such as power, transport, irrigation, etc.
2.
Social infrastructure
such as education, health and family welfare.
3.
Internal law and order
and defence.
4.
Public administration,
etc.
By incurring such expenditure, the
government creates a healthy conditions or environment for economic activities.
Due to economic growth, the government may be able to generate income in form
of duties and taxes.
4.1 Productive and Unproductive
Expenditure
This classification was made by Classical
economists on the basis of creation of productive capacity.
Productive 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
productive expenditure.
Unproductive Expenditure :-
Expenditures in the nature of consumption
such as defence, interest payments, expenditure on law and order, public
administration, do not create any productive asset which can bring income or
returns to the government. Such expenses are classified as unproductive
expenditures.
4.2 Development and
Non-Development Expenditure
Modern economists have modified this
classification into distinction between development and non-development
expenditures.
Development Expenditure :-
All expenditures that promote economic
growth and development are termed as development expenditure. These are the
same as productive expenditure.
Non-Development Expenditure :-
Unproductive expenditures are termed as non
development expenditures.
5. Grants and Purchase Price
This classification has been suggested by
economist Hugh Dalton.
Grants :-
Grants are those payments made by a public
authority for which their may not be any quid-pro-quo, i.e., there will be no
receipt of goods or services. For example, old age pension, unemployment
benefits, subsidies, social insurance, etc. Grants are transfer expenditures.
Purchase prices :-
Purchase prices are expenditures for which
the government receives goods and services in return. For example, salaries and
wages to government employees and purchase of consumption and capital goods.
6. Classification According to
Benefits
Public expenditure can be classified on the
basis of benefits they confer on different groups of people.
1.
Common
benefits to all :
Expenditures that confer common benefits on all the people. For example,
expenditure on education, public health, transport, defence, law and order,
general administration.
2.
Special
benefits to all :
Expenditures that confer special benefits on all. For example, administration
of justice, social security measures, community welfare.
3. Special benefits to some : Expenditures that confer direct special
benefits on certain people and also add to general welfare. For example, old
age pension, subsidies to weaker section, unemployment benefits.
7. Hugh Dalton's Classification
of Public Expenditure
Hugh Dalton has classified public
expenditure as follows :-
1.
Expenditures
on political executives : i.e.
maintenance of ceremonial heads of state, like the president.
2.
Administrative
expenditure : to
maintain the general administration of the country, like government departments
and offices.
3.
Security
expenditure : to
maintain armed forces and the police forces.
4.
Expenditure
on administration of justice :
include maintenance of courts, judges, public prosecutors.
5.
Developmental
expenditures : to
promote growth and development of the economy, like expenditure on
infrastructure, irrigation, etc.
6.
Social
expenditures : on
public health, community welfare, social security, etc.
7.
Pubic
debt charges :
include payment of interest and repayment of principle amount.
courses of action in terms of the merits of protection
