PUBLIC EXPENDITURES
Paredes Andres
Group 3 Diana Apog
Dorego
Meaning of Public Expenditure
Public expenditure is spending made by the government
of a country on collective needs and wants, such as
pension, provisions, security, infrastructure, etc. Until the
19th century, public expenditure was limited as laissez
faire philosophies believed that money left in private
hands could bring better returns.
Importance of Public Finance
Public spending is considered to be an important tool
of fiscal policy, which includes all consumer goods,
investment payments and redistribution of the
income. The government uses them to speed up
economic growth by increasing the demand for
productive public goods (Slemrod, 1995).
1.Increase
2. Growth
in area
of state
Causes of
population function
Increase in
Public
3.Higher
4.Increase
price level
in
Expenditure and Rising
national
cost of public
wealth
service
5. Ability to
6.Expantion in
Causes of
tax social service
Increase in
7. As Musgraves
8.Technological
observes changes
Public
" Efficient"
Expenditure 9.Expention of
public sector
10.Economic
development
Theories of Growth of the Public
Expenditure
Theory # 1. Wagner’s Hypothesis:
Adolf Wagner a noted German political economist (1835-1917)
propounded an empirical law to analyses and explains the trend
in the growth of public expenditure. Wagner argued that a
functional, cause and effect relationship exists between the
growth of an industrializing economy and the relative growth of
its public sector.
Theories of Growth of the Public
Expenditure
Wiseman – Peacock hypothesis:
According to Wiseman and Peacock Public Expenditure does not increase in a
smooth and continuous manner. The increasing public expenditure over time
has
occurred in a step-like manner. They studied the experience of the United
Kingdom
for a secular period (1890-1955). Instead of studying the trend of public
expenditure, they studied the fluctuations in government expenditure over
time.
Theories of Growth of the Public
Expenditure
Theory # 3. Colin Clark’s Critical Limit Hypothesis:
Another hypothesis relating to the growth of public expenditure is provided by
Colin Clark. The hypothesis is basically concerned with the tolerance level of
taxation. It was developed by Colin Clark immediately after the Second World War.
The hypothesis draws conclusion from the empirical data drawn from several
western countries for inter-war period. Clark wants to point out that in an
economy; inflation emerges when the share of the government sector, as measured
in terms of taxes and other receipts, exceeds 25 per cent of the aggregated
economic activity in the country.
Guidelines for Utilization by
Prof. Alfred G. Buchler
a) public expenditure should promote the
welfare of the society.
b) Careful judgement should be exercised by the public
authority and the electorate to ensure that the advantages of
the public expenditure should exceed the costs and that the
fund utilized by the governments will be more conducive to
social welfare than the same funds would, if privately utilized.
c)Public expenditure should be utilized in the order of
priority of welfare. That is, the services which will bring
about maximum welfare should be undertaken first
CANON OR PRINCIPLES OF
PUBLIC EXPENDITURE
1. CANON
2. CANON
3. CANON
4. CANON
OF
OF
OF
OF
ECONOMY ECONOMY SANCTION SURPLUS
Canon of Benefit
Canon of benefit is one of the important canons put forwarded by
Professor Kinley Shiras. By this canon, public expenditure should aim
to achieve maximum social benefits. It is based on the principle of
equality. Because maximum social benefits can be established only
when the public expenditure spends based on the principle of
equality. That is, this canon accentuates to eradicate inequalities and
other social burdens in between different locations, uses of
economic resources, benefits of each sectors etc.
Canon of Economy
Canon of economy is a strategic one. It refers the economizing
the public expenditure. That is public expenditure of an authority
must aims to reap maximum benefits with limited costs. Canon of
economy is again emphasis on the prevention of over expenditure
and wastage in public finance. There must be proper planning in
the economy for the better utilization of its resources.
Canon of Sanction
Canon of sanction in public expenditure is connected with
the process of approval of various programs and schemes
of government such as sanction of projects, researches,
implementation of various recommendations etc. There
should be a cost-benefit analysis in the canon of sanction.
Then only maximum social advantages can be attained.
Canon of Surplus
Canon of surplus accentuate on the avoidance of deficit budget.
Even though deficit budget helps the economy to generate
more employment and income particularly in times of
depression, over spending will badly affect the entire economy
and the control of government over the economy. In short,
canon of surplus highlights the major issues of over spending and
long run experienced deficit budget.
Thank You!
