Public Expenditure Flashcards
What is public expenditure?
Government spending on behalf of the country’s citizens/public.
What is total managed expenditure (TME)?
The total amount of money that the government spends each year.
What are the 3 types of public expenditure?
1) Capital expenditure.
2) Current expenditure.
3) Transfer payments.
What is capital expenditure (give example)?
Long-term investment expenditure by the government on capital projects. E.g. road construction, the building of new schools/hospitals, etc.
What is current expenditure (give example)?
The government’s day-to-day expenditure on goods and services. E.g. wages/salaries of civil servants, drugs used by the NHS, etc.
What are transfer payments (give example)?
Payments made by the state to individuals without an exchange of goods or services, and they are typically used as a way of redistributing income. E.g. social security, welfare benefits, JSA, child benefit, etc.
What are 5 potential reasons for changes in public expenditure?
1) The economic cycle.
2) Changing age distribution.
3) Changing expectations.
4) Financial crises.
5) Economic philosophy.
How can the economic cycle influence public expenditure?
In periods of slow economic growth/recession, public expenditure (in developed countries) is likely to increase, due to increased spending on welfare benefits and as an attempt to boost the economy.
How can changing age distributions influence public expenditure?
Ageing populations place greater pressure on established healthcare systems, causing an increase in public expenditure (in developed countries).
How can changing expectations influence public expenditure?
An increase in expectations of services, such as health and education, can cause an increase in public expenditure on new technology to better such services.
How can financial crises influence public expenditure?
The government may have to spend money bailing out financial institutions, causing a rise in public expenditure.
How can economic philosophy influence public expenditure?
Market orientated countries (e.g. the USA), rely less on public expenditure to provide services, such as healthcare. This means that individuals have to buy health insurance, unlike in nations, such as the UK, where the state provides services through taxation.
What is a positive impact of a rise in public expenditure on economic growth?
Public expenditure on infrastructure (e.g. roads, healthcare, education) leads to improved supply-side performance of an economy, resulting in economic growth.
What is a positive impact of a cut in public expenditure on the private sector?
Free market economists argue that a cut in public expenditure will lead to a transfer of spending to the private sector, increasing efficiency and productivity, as well as output.
What is a negative impact of extremely low/zero public expenditure on living standards?
With extremely low/zero public expenditure, there would be market failure. Absolute poverty would exist, as individuals with extremely low/no income would have no means of survival.
