Public Expenditure Flashcards
What are the Types of Government Expenditure
Current Expenditure
Capital Expenditure
Transfer Payments
Why is the proportion of public expenditure to GDP measured
To compare levels of public spending both over time and between different countries
Define Current Expenditure
Government’s day-to-day expenditure on goods and services
Define Capital Expenditure
Government Expenditure on infrastructure such as roads and hospitals
Define Transfer Payments
Payments given by the state to individuals
For what reason are transfer payments typically used for
To redistribute income
Why are transfer payments different to other types of government expenditure
The government gets no goods or services in return for this expenditure
What does Tax Base mean
The total value of all the income, property, etc. on which tax is charged
Why is government spending likely to rise in a recession
Unemployment Benefits will rise
Expansionary fiscal policy may be used to recover from the recession
What is likely to happen to public goods as an economy develops
Because public goods tend to be viewed as normal goods by voters - the higher average incomes are the more citizens tend to demand from their governments in terms of public goods and services because public goods are income elastic
What does it mean to service a debt
Repaying both the principal and the interest on a debt
Reasons for changing the size and composition of public expenditure
Economic Development / Rising Incomes
Changes in the structure of the population
Stage in the business cycle
Financial Crises
Levels of Government Debt
What gets impacted due to changes in levels of public expenditure
Productivity
Living Standards
Taxation
Inequallity
Crowding In
Crowding Out
What is the crowding out effect
When increased government spending results in lower private sector spending
Why may crowding out occur
A reallocation of resources towards public sector spending when the economy is at full employment will reduce private sector spending
If the increased government spending is financed through borrowing - the increase in demand for borrowed funds may increase interest rates which will discourage private sector borrowing