Public expenditure is the government's spending of money to meet its obligations and supply goods and services to the public. Public expenditure is the funds the government spends to assist in making people's lives better. This money is spent on vital things such as schools, hospitals, and constructing roads. The government obtains this money primarily from taxes collected from individuals and companies. Public spending ensures that all individuals have access to services they require. It ensures the nation becomes a suitable place to reside for all.

Public expenditure is a vital topic to be studied for the economics related exam such as the UGC NET Economics Examination.

In this article the readers will be able to know about the following:

• What is Public Expenditure
• Causes of Public Expenditure
• Types of Public Expenditure
• Principles of Public Expenditure

What is Public Expenditure?

Public spending is the amount of money that the government invests in services and projects benefiting the people. These are items such as schools, hospitals, roads, and police forces. The government makes money primarily from taxes from individuals and companies. Public spending aids in offering crucial services to all, regardless of whether they are wealthy or poor. It is spent on constructing and enhancing something that everyone can benefit from. The government makes a decision about where to spend this money wisely to improve the country.

Causes of Public Expenditure

Government spending is the amount of money that the government spends to pay for goods and services for its citizens, such as building roads, schools, and hospitals, as well as helping those in need.

Growing Population

When more individuals are born and come to the country, the government has to spend more on services. More houses, hospitals, and schools are required in order to cater to the population. The government must ensure there is sufficient food, clean water, and medicine for all. As the population increases, the government has to spend prudently in order to cater to more people.

Economic Development

The government invests money to make the country develop and richer. Money is invested in constructing roads, bridges, and new technology to enable businesses to expand. A developed economy creates employment and enhances the lives of all people. Economic development is crucial for the future of the nation and its citizens.

Providing Public Services

Public services such as education, healthcare, and safety require money to function correctly. The government pays for schools to be constructed, teachers to be hired, and hospitals to have doctors and medication. These services would not be available for individuals to live healthy, educated lives without public services.

National Defense and Security

The government invests money to defend the nation and secure the safety of individuals. This encompasses subsidizing the police force, military, and fire services. National defense secures the country from external attacks and crises. It is fundamental to the safety of all individuals residing in the nation.

Social Welfare and Support

The government invests in funding to assist individuals who are in need, such as the sick, the unemployed, or the poor. Welfare schemes support individuals to regain their footing. The government applies public finances to see that no one goes without assistance when they require it. Social welfare schemes play a vital role in the welfare of a just and compassionate society.

Disaster Management and Emergency Needs

When disasters occur due to nature, such as floods or earthquakes, the government has to incur expenses to assist the victims. There is a need for emergency services to rescue individuals, supply food, and reconstruct houses. Public spending facilitates swift aid during hard times. 

Maintenance of Infrastructure

The government invests funds in roads, bridges, and public transport to ensure the country is well running. These are essentials for individuals to move around, work, and conduct business. Keeping infrastructure in good condition ensures the economy develops and individuals live comfortably. The government needs to maintain everything in good shape to prevent issues.

Knowing the types of public spending informs us about where the money is being used. There are two categories of public spending: revenue spending and capital spending. Both of them contribute towards enhancing the nation and helping the citizens. Let us discuss various types of public spending.

Revenue Expenditure

Revenue expenditure is the funds spent by the government on day-to-day activities and services. It includes paying teachers, doctors, and police officers salaries. It also includes the maintenance of schools, hospitals, and other public institutions. Revenue expenditure sustains the nation's day-to-day operations.

Capital Expenditure

Capital expenditure is money spent on long-term projects that improve the country’s infrastructure. This includes building roads, bridges, and schools. Capital expenditure helps create things that last for many years and benefit people over time. It’s an important type of spending because it helps grow the country’s economy.

Transfer Payments

Transfer payments are funds provided to individuals for no goods or services. Payments such as pensions for elderly individuals or unemployment compensation for unemployed individuals are examples of transfer payments. Transfer payments are provided to needy individuals by the government. It makes sure that individuals in need are financially capable of meeting their needs.

Subsidies

Government payments to lower the cost of goods or services for individuals are known as subsidies. For example, the government gives farmers subsidies to produce food in order to keep prices low and guarantee that people can afford necessities like food and energy. Subsidies are also used to help people who might not be able to afford necessities.

Defense Expenditure

The government uses defense spending to protect the nation from threats and to ensure everyone's safety; a strong defense is required to provide peace and security for all citizens. Defense spending includes funding the military and national security, such as paying soldiers, buying armored vehicles, and building defense structures.

Interest Payments

Interest payments are money the government pays to the people who lent it money. This typically occurs when the government borrows money to finance projects. The government must pay interest on its loans, just as an individual pays interest when he or she borrows money. Interest payments are necessary for maintaining the government's finances in proper shape.

Social Welfare Expenditure

Social welfare spending is funds expended to assist individuals who are in need. It involves such services as health programs, education, and shelter for needy families. Social welfare spending by the government is done to ensure that everybody is provided with the things they require. It's necessary for the prevention of leaving anybody behind in society.

Public Debt Payments

Public debt payments are funds used by the government to settle debts owed to other nations or companies; the government may incur debt that it will eventually have to repay for large projects; these payments preserve the government's credit; and debt payments must be handled carefully for the benefit of the country's economic health.

Principles of Public Expenditure

The sum of money used by the government to purchase goods and services for its people is known as public spending. To guarantee that public funds are used appropriately, the government must adhere to a set of rules, or principles. These guidelines establish how funds should be allocated to benefit the entire country. By adhering to these principles, the government is able to ensure that the money is distributed equitably and efficiently. The public expenditure principles guarantee that money is spent on the most essential things, and that it is spent in a manner that makes the nation develop. Let's examine the most important principles that govern how the government spends money.

Efficiency

Efficiency is an act of spending money in a manner that it provides maximum benefit. The government must ensure that the money that is spent provides good outcomes to the people. One should spend prudently so that there is no wastage of resources. Efficiency ensures that the government achieves more using the available money.

Equity

Equity entails that all people ought to be treated equally when funds are expended. The government has to ensure that all individuals, regardless of their background or earnings, access assistance. It assists in preventing disparity between poor and wealthy individuals. Equal expenditure gives all the citizens an opportunity to better themselves.

Transparency

Transparency is when the government needs to be honest about how money is spent. Citizens must understand where their tax dollars are being spent and what for. By being transparent, the government gains the trust of the people. It also ensures that there is no wastage or corruption in the way money is spent.

Accountability

Accountability is that the government should be responsible for its expenditure of funds. If money is misused or wasted, the government has to explain the reason. Being accountable guarantees public funds being used for the appropriate purposes. It builds confidence in the capability of the government in handling money.

Sustainability

Sustainability is all about the government spending in such a manner that it benefits coming generations. What is spent now should contribute to the growth of the country in the long term. The government needs to look ahead and not only towards urgent needs. Sustainable spending ensures there are resources for coming generations.

Prudence

Prudence is being cautious and not spending more money than the government can handle. The government must not borrow too much money or spend too much money. Prudence ensures that public finances are robust. It also makes sure that the government can act in response to unforeseen circumstances, such as emergencies.

Cost-Effectiveness

Cost-effectiveness is to spend money in a manner that provides the most value for the price. The government must always seek to obtain the best outcomes with the least amount of funds. This prevents excessive spending and ensures that funds are spent in the most efficient manner. Cost-effective spending results in improved outcomes for everyone.

Public Interest

Public interest refers to the government spending money in a manner that is for the benefit of the entire nation. It needs to spend on projects that benefit the largest number of people and make society better. When the government spends money for the common good, it is for the benefit of the nation as a whole. Public interest means that money is spent on items that benefit everyone, not a select few.

Public spending is one of the most crucial components of a nation's care for its citizens; it ensures that everyone has access to protection, healthcare, and education; the government uses tax dollars to build the nation's infrastructure and help those in need; when funds are used responsibly, the government can improve the lives of all its citizens; and public spending plays a major role in creating a happy and healthy community.

Public expenditure is a vital topic per several competitive exams. It would help if you learned other similar topics with the Testbook App.