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Are you aware of the types of public expenditure and who controls it? Do you know how it works and how does it affect the economy of the United States?
Public Expenditure is a component of public finance that studies the spending, deficits and taxation made by the government. It is fused with public revenues to raise capital for public welfare and creating a balance in the use of resources.
One of its major effects includes redistribution of resources among the underprivileged classes and maintaining a balance in the economy.
To understand about Public Expenditure in detail, lets review its types. Check it out.
Different Types of Public Expenditure
Classification of public expenditure can be based on the systematic arrangement of different items on which the government incurs expenditure. It can be mainly classified into 4 categories.
1# Capital & Revenue Expenditure
Capital Expenditure focuses on government expenditure in building and creating fixed assets. It is considered as a form of investment as they add to the net productive assets of the economy. It can also be referred as Development Expenditure as it focuses on increasing the production capacity of the economy as a whole. Capital expenditure is an investment expenditure and a non-recurring type in nature.
For example, Expenditure done on
- Agriculture
- Industrial development
- Public enterprises
- Building irrigation dams etc. are considered as capital expenditure.
Revenue Expenditure refers to current or consumption expenditures incurred on
- defense forces
- public health
- education
- civil administration
- maintenance of government machinery and equipment etc.
It is recurrent in nature, that is, it has to be incurred almost every year.
2# Development & Non-Development Expenditure
Development Expenditure, also known as Productive Expenditure is incurring expenses on the development of infrastructure, public enterprise or agriculture production capacity which helps in the growth of the economy income. Therefore, they are termed as productive expenditure. All activities that require expenditure for economic growth is classified under development expenditure.
Non-Development Expenditure, also known as Unproductive Expenditure refers to incurring expenses on activities that do not bring in any income to the government. It includes payment of interests, expenditure on law & order, public administration etc. that do not create any fixed asset beneficial for the financial growth of the economy. Therefore, these expenses are termed as Unproductive Expenditure.
3# Transfer & Non-Transfer Expenditure
Transfer Expenditure refers to incurring expenses on activities which do not require any corresponding transfer of real resources such as goods & services. It includes expenses made on Interest payments, welfare benefits to weaker sections, unemployment allowances, or schemes such as National Old Pension, wherein, the government does not acquire any income in return, but adds to the welfare of the society. It can be considered as a redistribution of income within the society, for the society.
Non-Transfer Expenditure focuses on creation of income or output of expenses. It includes expenses made on development & non-development activities resulting in the creation of output directly or indirectly.
For example, expenses incurred on-
- Economic Infrastructure (Power, Transport, Irrigation etc.)
- Social Infrastructure (Education, Health, Family Welfare, etc.)
- Law & Order
- Defense Services
- Public Administration
Non-transfer expenditure focuses on creating a healthy environment for economic growth.
4# Plan & Non-Plan Expenditure
Plan Expenditure refers to incurring expenses on development activities within the purview of the planned development programs. It is inclusive of investment as well as consumption expenditure by the government or the planning commission of the government.
It includes spending on
- Transport
- Rural Development
- Communication Services
- Agriculture, Energy
- Social Services and more.
Non-Plan Expenditure includes spending on activities that are not mentioned in the on-going development program of the government. It can be a mix of development & non-development expenditure.
For example, expenditure done on
- Subsidies
- Defense
- Law & Order
- Maintenance services
- Interest Payments etc.
Other Classifications
5# Primary & Secondary Expenditure
Public expenditure classified on the basis of importance can be categorized as primary and secondary. As of today, both these expenditures are necessary for the development of the country.
Primary Expenditure are the necessary expenses incurred for the existence of the country.
Secondary Expenditure is meant for achieving welfare & development of the country.
6# Defense Expenditure
It is the expenditure done on defense equipment, wages and salaries of the armed forces, navy and air-force etc. It is incurred by the Government in order to provide security to the citizens of the country from any kind of external intrusion or attack.
7# Civil Expenditure
Expenditure incurred to maintain law & order and the administration of justice in the country is known as Civil Expenditure.
8# Current Expenditure
The expenditure that is met out of the current revenue and does not lead to the creation of capital assets such as expenditure on defense, administration etc, is know as current expenditure.
9# Progressive Expenditure
On the basis of effects of public expenditure on the society, progressive expenditure can be termed as expenditure for the higher income group and bracket of people to get less benefits out of the government expenditure. Basically, beneficial for the weaker sections of the society.
For example, Expenditure on-
- Education
- Health care
- Fair pricing in shops
10# Proportional Expenditure
Proportional public expenditure are the expenses incurred which benefit proportionately irrespective of the level of income of the citizen of the country. It focuses on a fixed percentage of increase in the salary which will have a proportionate effect on all.
Objectives of Public Expenditure
Here are few objectives of public expenditure.
- Administration of Law & Order
- Industrial Development
- Creation of Social Goods
- Servicing of Public Debt
- Transport & Communication Development
- Maintenance of defense goods
- Maintenance of diplomats in foreign countries
- Maintenance of police force
- Provision for public health
- Public Administration
Bottom Line
We hope this article helped you understand the working and distribution of Public Expenditure & how does it work. By fulfilling the objectives , along with proper allocation of funds, the public expenditure of any country can bring in more income than expenses.
