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Public Expenditure:

 

Definition and Explanation of Public Expenditure:

 

The classical economists did not attach much importance to public expenditure. They advocated the policy of laissez-faire. They held the view that government expenditure were apt to be wasteful. They firmly believed that if money was left in the private hands, it could bring better returns. According to them, when there is free economic competition, trade and industry flourishes and prices are regulated.

 

This old laissez-faire philosophy has now been discarded. Every government is taking active part in the organization of its country. The range of economic activity has too much widened. There has taken place a considerable increase in government expenditures. This division of the public finance which received little attention at the hands of the classical economists is now considered to be the most important department of public finance.

 

Causes/Factors of Growth of Public Expenditure:

 

Public expenditure has now-a-day enormously increased due to the intensive and extensive expansion of state activities. The main factors/causes which have contributed to the increase in the government expenditures are as under:

 

(i) Increase in Defense Expenditure: Practically every country of the world now is spending large quantity of money on preparing for a war or for its prevention. The countries are feverishly engaged in producing costly war material. The air to air missiles, the jet aero planes, hydrogen bombs, tanks, submarines, F-16, etc., cost huge amounts of money to the exchequer. We conclude, therefore, that the main factor which has contributed to the enormous increase in the public expenditure is the ever increasing armament race which is going on in almost every country of the world.

 

(ii) Expansion of Government Functions: Increase in public expenditure is also due to the keen interest which governments are taking for the welfare of their citizens. Every government is spending large sums of money on construction of roads, hydro-electric projects, buildings, hospital, canals and other public works programmes. It is also spending huge amounts of money for providing education, housing facilities, public parks, libraries, museums, medical aid, etc. etc.

 

(iii) Backward Area and Increase in Population: Another reason for the growth of public expenditure is that the modern governments with the limited resources at their disposal have brought under control the neglected parts of their territories. The governments are spending vast sums of money for raising the standard of living of the people hitherto, living in the underdeveloped areas. The increase in expenditure is also due to the fact the population is increasing at a fast speed. The welfare states of today, therefore, have to meet the needs of people living in their countries. The increase in public expenditure is, therefore, inevitable.

 

(iv) Higher Price Level: Public expenditure has increased because of the higher price level in almost every country of the world. The government has now to spend increased amounts of money on the purchase of commodities and services. The public' expenditure is, therefore, bound to go up.

 

(v) Increase in Public Revenue: The most important factor which has contributed to the expansion of public expenditure is the increase in public revenue. Since the Industrial Revolution, there has been continuously taking place an increased use of heavy plants and complex machinery. The per capita income of the people has gone up. As the taxable capacity of the people has increased, so the revenue of every state has also increased. With the rise in public revenue, the government expenditure is surely to go up.

 

(vi) Duplication of Expenses: Some increase in public expenditure is also due to the fact that government is sometimes wasteful and extravagant in its expenditure. Duplication of government expenditure is not uncommon to any one of us.

 

(vii) Accelerating Economic Growth: The government of every country is doing its utmost for accelerating the economic growth in order to raise the standard of living of the people. This has also led to the expansion of state expenditure.

Relevant Articles:

Public Finance
Public Finance Versus Private Finance
Public Expenditure
Principles of Public Expenditure
Public Expenditure and National Income
Role of State in Economic Activity
Functions of Modern State
 

Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Rent
Wages
Interest
Profits
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
Theory of International Trade
Balance of Payments
Commercial Policy
Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance
History of Money

 

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