Government expenditure refers to total expenses incurred by public authorities at all levels of administration (local, state and federal) in the country. It includes recurrent expenses and capital expenses.
Classification of government expenditure
- Capital expenditure: Capital expenditure are expenses on projects which are permanent in nature. They include money spent by government on building roads, schools, bridges, hospitals, industries and other permanent investments.
- Recurrent expenditure: Recurrent expenditure are those expenses which are repeated on yearly or regular basis. In this case, they are not permanent. Such expenditure include money spent on salaries, electricity bills, maintenance of infrastructures, etc.
Objectives or Main Aims of Government Expenditure
There are several objectives or aims which the government wants to achieve by spending money on different items. These items which government spend money on include:
1) General administration: Government spends money in maintaining:
- the civil service.
- various government departments.
- political appointees.
- the armed forces and the police.
- the legislature.
- the judiciary.
- the embassies outside the country.
- the executive.
2) Economic services: These include expenditure on:
- Power stations.
- Forestry, etc.
3) Social services: Government of every country usually allocate large sums of money for the provision of social amenities to the people. Money spent on social amenities include:
- Infrastructural facilities, e.g. roads, airports and seaport, electricity, pipe borne water, communication services, etc.
- Health care delivery.
- Recreational facilities.
- Environmental sanitation.
4) Transfer services: Government also spends money on items like:
- Servicing of public debt.
- Granting of loan to local authorities.
- Payment of pensions.
- Loans lent to friendly nations.
Factors Contributing to the Increase in Government Expenditure
Government expenditure has continued to increase in recent times due to the following reasons or factors:
- Population growth: As the population of a country grows, so will its public expenditure continue to increase.
- Inflation: Inflation can contribute to a rise in government expenditure as government spends more on projects and services.
- Unemployment: Attempt by government to combat unemployment usually increases government expenditure.
- Poverty: Attempts by government to alleviate poverty lead to increase in government expenditure.
- Financing of democratic institutions: The financing of democratic institutions like political parties and electoral bodies and electioneering campaigns has led to increase in government expenditure.
- Social security payment: Rising social security payment has also led to an increase in government expenditure.
- Rise in national debt: Repayment or servicing of huge accumulated debts has increased government expenditure.
- Economic development: Government effort to keep pace with development in the country increases its expenditure, e.g. expenditure on research and development of nuclear weapons.
- Expenditure on wars: Expenditure on war and other social dislocations during wars increases government expenditure.
- Cost of administration: A rise in the cost of general administration e.g. increases in the salaries of civil servants consequently increases government expenditure.
- Defence/security expenses: A rise in defence or security expenses also increases government expenditure, e.g. payment of salaries to armed forces and the police, acquisition of ammunitions, training of armed forces personnel, etc.
Effects of Public Expenditure
- Affects distribution of wealth: Some government expenditure help to redistribute income or wealth of the people. For example, the provision of free education, free medical care, low cost housing, etc. will benefit the poor masses and by so doing help in alleviating poverty and redistribute wealth.
- Effects on employment: Government expenditure in the establishment of industries and setting up of employment agencies would go a long way in generating employment opportunities for the people.
- Effects on production: Government expenditure in the establishment of industries and increase in wages and salaries will provide increased income to individuals, which enable them to have a higher purchasing power. This will lead to increased demand, which will influence producers to increase production.
- Even distribution or allocation of resources: Government expenditure also helps to allocate certain resources which are in abundance in certain areas to other areas where they are in short supply. D
- Effect on price level: When government increases its expenditure without a corresponding increase in output, this leads to high volume of money in circulation. This in turn may eventually lead to higher prices and inflation.