Theories of public expenditure. Theories of Public Expenditure 2019-01-17

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Theory of Public Goods

theories of public expenditure

The functional relationships, Wagner sought to trace are complex. Adam Smith advocated mini­mum activities for the state. 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. In the case of a private good, we carry out horizontal summation of individual demand curves. Such expenditure benefits the poorer among the poorest and helps to raise the living standards of the weaker sec­tions. As a result state activities ex­panded to areas like irrigation and flood control projects, construc­tion and maintenance of public parks, provision of education and health care facilities, creation of economic overhead capital etc. .

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Theories of Public Expenditure

theories of public expenditure

In terms of prices, on the other hand, for private goods each consumer price equals producer price, while for public goods individual consumer prices add up to producer price. Public expenditure influences all these factors either posi­tively or negatively. For example, social expenditure on old age pension, poor relief etc. In other words, the object of public expenditure may be either to keep social life secure and ordered or to make that secure and ordered life better worth living whether from an economic or non-economic point of view. Better educated persons are better tax payers and less expensive citi­zen than paupers and criminals.


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Public Expenditure: Meaning, Classification and Effects

theories of public expenditure

Dr Yubraj Khatiwada When Dr Khatiwada joined the office as a governor, most of the macroeconomic indicators were forced people to ask whether Nepal is going to be a failed economy. The solution of the model is then tested using panel data techniques for a relatively large sample of 106 aid-recipient. According to his theory, lapses from full employment or depressions are caused by deficiency of aggregate demand due to the slackened private investment activity. This classification failed to bring out the essential differ­ences in kind between the several forms of expenditure. But there is wide difference between these two theories. Government exists for the benefit of the governed and the justification of the government expendi­ture is, therefore, to be sought in the benefit of the community as a whole. Thus public expenditure has acquired great importance in modern times for two basic reasons.

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Theories of Public Expenditure

theories of public expenditure

This has necessitated an increasing rate of outlay on the provision of public services to the urban areas. An tho ny Dow ns offer ed useful anal ysis of these poli tic al processes. Th ese events cre ate new xgen cy demand s on government -new soci al welfare schemes, war pensions, affordab le previous ly all leadi ng to m aintaining the level o f e xpen diture fter social upheavals. Aronson, for Peacock and Wiseman expenditure growth is sporadic rather than constant and revenues create their own expenditures. Until the 19th century, public expenditure was limited as laissez faire philosophies believed that money left in private hands could bring better returns. In recent years government expenditure is increasing faster than their ability to raise resources, because now their activities are not so restricted as only to maintain law and order and protect the country against external aggression. Moreover the absolute and relative increases steps upward in taxing and spend­ing activities by the British government have generally taken place during periods of major social disturbance or crisis such as war or depression.

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Unit

theories of public expenditure

This means that the countries which had pushed up their tax ratios over time had not necessarily increased their saving performance and that countries with high tax ratios were not necessarily high savers. On the other hand, expenditure on defence, civil administration i. 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. The slope of consumption possibility curve must, of course, be equal to the difference of the slopes of the two curves from which it is derived. When the real per capita output of public goods remains at the same proportion of total economic activity, i.

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The Pure Theory of Public Expenditure: Partial Equilibrium

theories of public expenditure

A road may satisfy the definition of a public good as long as the traffic is low, but with higher density and consequent congestion this will no longer be the case. Like­wise, by diverting resources through subsidies and bounties to the backward regions it can promote growth of output in backward regions. The modern Governments have therefore to incur a lot of expenditure on social security measures such as old age pensions, unemployment allowances, sickness benefits. Owing to these developmental activities of the Government in India, the proportion of developmental ex­penditure to the total Government expenditure has greatly increased. According to Pigou, Expe nditure should be so distributed betwee n b attleships an d poor relief i n such wi se tha t the last shilli ng devote d to each o f them yie lds the same real return.

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Analysis of Public Expenditure Growth: 3 Theories

theories of public expenditure

Inflation is a complex economic phenomenon influenced and characterized by a number of mutually exclusive and inter-dependent factors. Without paying, the individual is excluded from enjoying the benefits of consumption. However, in our view, if such social security expenditure is kept within proper limits and if it is used to help the really needy and helpless, the adverse effects of social security expenditure on productive efforts and savings may be negligible. And it demands of more social goods and service and it creates increase in government expenditure result social imbalances. However, the methods differ widely from one an­other. Then it makes payment in the form of direct money transfer to bring the incomes of all families upto that standard or at least to close a large part of the gap between their income and poverty income standard.

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Public Expenditure: Meaning, Classification and Effects

theories of public expenditure

W ith real economic grow th, the more o r le ss stable l evel o f taxation will produce inc rea sin g amo unts o f revenues as wel l as expenditure. Similarly, Morss 1969 concludes from his sample of 46 developing countries that the relationship was contrary to the evidence of please effect i. The public expenditure can be used as a lever to raise aggregate demand and thereby to get the economy out of recession. Wagner believed that increased public expenditure was the natural result of economic growth and the continued pressure for social progress. Public Approach Publi c goods are those fo r whi ch no private mechanism exist s for providing the m an d whic h are consum ed i n equa l amounts by all. In this procedure the expenditure and in­come of public bodies are classified into two heads.


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Public Expenditure and Economic Growth: A Review of Theoretical and Empirical Literature. / Bowale Ebenezer / Profiles / Home

theories of public expenditure

Even afte r the even t is ove r, new level s o f tax tole rance ch ange an d the society feels c apabl e'o f carrying a heavier tax burd en. Dalton observes that system of public expen­diture is the best, which has the strongest tendency to reduce the inequalities of income. This law seeks to establish the functional relationship between the rate of growth of an economy and government activities with the result that the government sectors grows faster than the economy 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. Firstly, Government expenditure has been classified into revenue expen­diture and capital expenditure. As his share of the cost goes down, his desired level of provision increases.

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Theories of Public Expenditure

theories of public expenditure

Whereas transfer expenditure does not create any income or output. This can be shown for a two-person community consisting of A and B in Fig. By ensuring peace and tranquility defence ensures the smooth growth of productive activity and national income. Thus when the major social disturbance ends, no strong motivation exists for the society to re­turn to the lower pre-disturbance level. India is wedged in between two enemies, namely, expansionist China and aggressive Pakistan, which have been strengthening their armed forces.

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