4.5.1 Public Expenditure ✅

Question 1

Why does gov spend money?

Answer 1

• Achieve macro objectives (growth, low inflation, balenced current, low unempoyment).
• Market failure correction.

Question 2

How much did uk gov spend in 2022-23 compared to tax rev?

Answer 2

1.1 trillion but 980 in tax.

Question 3

What are types of expenditure? How much is spent on health care + schools? What one doesn’t contribute to GDP

Answer 3

• Capitol gov expenditure =investment eg new roads, schools (will be consumed in over a year).
• Current gov expenditure = daily payments eg salaries + health services (will be consumed this year)
• Transfer payments = pensions + benefits (no g/s exchanged).
  40%
  Transfer.

Question 4

Do developed countries gov spend more and why? When is this not the case?

Answer 4

Yes = higher incomes thus demand more services. Goods that gov provides in income elastic thus higher income more d.
No = differs between countries ie USA less so.

Question 5

Why do developing countries spend less?

Answer 5

• Lower tax rev ( less able to collect + more tax avoidance).

Question 6

How did global financial crisis effect gov expenditure?

Answer 6

Increased = gov had to pay more welfare benefits + bailout banks. Eg uk gov bought stakes in loyds + royal Scottish bank.

Question 7

What policy of expenditure has gov been following since 2010?

Answer 7

Policy of austerity.

Question 8

What are reasons for Chang in size + composition of public expenditure?

Answer 8

• Level of GDP.
• Size + age of population.
• Political priorities.
• Redistribution of income.
• National income.
• State of economy.

Question 9

How does size/ age of population impact expenditure?

Answer 9

Larger population = more spending bc more revenue.
Younger + older people effect areas = younger (education).

Question 10

How does the level of GDP influence expenditure?

Answer 10

Lower GDP = lower government spends. (Developing countries.
This is due to lack of tax base in developing countries + tax evasion.

Question 11

How does national debt impact expenditure?

Answer 11

As interest payments can infringe on expenditure eg Greece national debt increased to 180% gdp 2015.

Question 12

How does dif levels of gov expenditure effect productivity/growth?

Answer 12

• Free market = argues inefficiencies. ❌
• Government provides infrastructure that improves efficiencies eg roads. ✅
• Educstion imporves human Capitol thus improving growth + healthcare reduces sick days. ✅
• Multiplier effect can further gov spending in spec areas.

Question 13

How does gov expenditure levels impact living standards?

Answer 13

• Social welfare is improved through correcting market failure + provision of goods.
• Reduces absolute poverty through providing basic goods. (Unlike developing).
• Gov provisions will be inefficient + will disincentivise workers thus output and living standards will fall. ❌
• principle agent problem (society might have made different choices).

Question 14

What is crowding out and how does gov expenditure effect this? Evaluation of crowding out?

Answer 14

Increase in expenditure in AD pushes out other activity (eg financial + resource).
- Gov borrow to finance expenditure from banks therfore will compete w firms increase interest rates and therfore reduce others investing. (Financial)..

• Limited resources therefore expenditure take away form priv sector.
  ( most promenade w low unempoyment).
  Thus may lead to no AD increase as spending crowd out the private sector.
  EV = transfer payment doesnt cause crowd out as its just transferring resources + high unempoyment gov spending may cause crowing in.

Question 15

What is the impact on level of taxation from expenditure?

Answer 15

• High spending = High tax (can disincentivise consumers).
• except oil rich economies.

Question 16

How does expenditure impact equality?

Answer 16

Spending should improve due to redistribution.