Th4.5: Composition and Size of Public Expenditure

Question 1

In most mixed and free economies, the lower the average income of the country…

Answer 1

the lower is likely to be the percentage of GDP spent by the government

Question 2

Why is this?

Answer 2

because poorer countries tend to have a lower tax revenue, due to avoidance, inefficiency at collecting and a smaller amount of wealth to tax

Question 3

Moreover, citizens in higher income countries…

Answer 3

demand more services from their government - government provided goods are income elastic

Question 4

However, why amongst developed countries are there significant differences in the size of government spending?

Answer 4

due to attitudes in the country

Question 5

What did the Global Financial Crisis lead to in this scenario?

Answer 5

huge increases in government spending as governments had to increase welfare payments and some governments used tax payer money to bail out banks

Question 6

However, since 2010 the UK has been following…

Answer 6

a policy of austerity in an attempt to reduce the debt - consistently attempting to reduce expenditure where they can