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Public or Government Expenditure – Introduction:

The classical economists did not give much importance to public expenditure. They advocated the policy of laissez-faire. They held the view that government expenditure were 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 then 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 are now considered to be the most important department of public finance.

Factors or Causes:

Public expenditure has now-a-day enormously increased due to the intensive and extensive expansion of state activities.

The main factors or 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 aeroplanes, 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 areas 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.