Saturday, June 5, 2010

Public Expenditure

Public expenditure refers to the expenditure which a government incurs for 1. Its own maintenance 2. The society and the economy 3. Helping other countries.

Classification of Public Expenditure:

· Productive and Unproductive expenditure: Productive expenditure promotes the production of country and national income. For example, expenditure on agriculture, industry, education, transport etc. Unproductive expenditure does not promote the production of country and national income. For example, expenditure on protection against aggression from external and natural disasters etc.

· Central, Provincial and Local expenditure: Expenditure by central Government is treated as central expenditure; expenditure by provisional Government is treated as provincial expenditure and expenditure by local Government is treated as local expenditure, i.e., union parishad, pauroshava etc.

· Maintenance and Development expenditure: Money spent on the maintenance of internal security, law and order, i.e., on police, jails and judiciary and money spent on the army to provide defense against aggregation is generally regarded as maintenance expenditure. Whereas, the development expenditure includes expenditure on irrigation projects, rail and road transport expenditure on agricultural and industrial development and so on. Even expenditure on education and research is also regarded as development expenditure.

· Transfer-Payments and Real expenditure: Transfer-payments refer to those kinds of expenditure against which there is no corresponding transfer of real resources. It is just transfer of purchasing power from one hand to other. For example, the payment of interest on public debt is transfer-payments. Because government collects money from public and pays to the lenders. It means it decreases the purchasing power of public and increases the purchasing power of lender. Other examples are old-age pension, unemployment allowance, free education, free medical aid etc. Real expenditures are those expenditures which destroy the utility of goods. For example, damage at the time of war and nature disasters.

· Pump-Priming and Compensatory expenditure: At the time of recession and depression, the prices of the goods and services, the total production, total investment, total income are less and prevails unemployment problem. It means instability in the economy prevails in a country. To promote the stability in the economy government has to spend. This sort of expenditure is called pump-priming expenditure. On the other hand, full-employment is the promise of every country. To fulfill the promise both private and public sectors have to take initiatives. If private sectors do not respond properly, government has to compensate that gap. The expenditure to fulfill the gap is called compensatory expenditure.

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