Public Expenditure

Question 1

What is public expenditure?

Answer 1

Government spending includes all forms of spending by central government and local governments

Question 2

What are the three main types of spending?

Answer 2

1. Capital expenditure
2. Current expenditure
   3 transfer payments

Question 3

What does capital spending include?

Answer 3

Capital projects and creating new assets. Investing to increase capital stock of the economy— hospitals and roads

Question 4

What does current expenditure include?

Answer 4

Items that are recurring and only last a limited time — teachers wages and public sector

Question 5

What does transfer payments include?

Answer 5

From the government to individuals – welfare payments

Question 6

What are the two key measures of government spending?

Answer 6

1. Real government spending - adjusted for inflation

2. Government spending as a % of GDP- share of national income

Question 7

Factors influencing the amount of public expenditure (4)

Answer 7

1. State of the economy– level of unemployment
2. How efficient the market is- if efficient less spending as no market failure
3. The system of the market- different countries
4. Equity and Equality- if inequitable distribution of resources- GS increase and with inequality

Question 8

Impacts of higher government spending (3)

Answer 8

1. More investment in education and infrastructure – positive externalities help
2. Retribution of income
3. Fiscal policy- in recession

Question 9

Evaluation of higher government spending (6)

Answer 9

1. Higher taxes to fund spending
2. Potential inefficiency of spending- lack a incentive
3. Crowding out- government tax to spend but leaves people without money anyway
4. Nested interests of public sector- once started spending it’s hard to stop
5. Kind of spending- transfer payments can reduce efficiency
6. Efficiency- no reason to be inefficient