what are the three sources of revenue a government can use to support its expenditures

Authorities Expenditure: Subject Matter, Categories and Principles

Article Shared past

Let us make an in-depth report of the bailiwick matter, categories and principles of public/government expenditure.

Government Expenditure Discipline Matter:

In order to acquit on their functions, govern­ments must obtain the services of labour and other factor units and (except in a completely socialist economy) acquire goods produced by individual business firms.

Public expenditure consists of expenditure by the central govern­ment and country governments, local authorisation (such equally municipalities and public corpora­tions), with primal government accounting for the major portion of such expenditure. Thus the central government is required to maintain adept roads, bridges, defence activities, canals and harbours, to protect trade, to maintain the coinage and to provide social security, education and religious instruction.

Categories of Authorities Expen­ditures:

Government expenditures can exist classified into several categories. First, some outlays are for direct government purchases of goods and services. Purchases of goods and services include government expenditures on the ser­vices of individuals, such every bit those in the armed forces, and on appurtenances, such as food, medicine schools, hospitals, highways, and motor cars. Many of the purchases the govern­ment makes are for appurtenances and services that are provided for all members of the society — including those who have not paid for then use.

When a good or service is provided for anybody and no 1 can be excluded from its use, it is termed a public good. Flood control and national defense systems are examples of public appurtenances. When regime provides a skilful or service that could exist sold in a individual marketplace, such as education or fire protection, it is providing a quasi-public practiced. The provision of public and quasi-public goods is a widely recognised function of the government.

A 2nd category of regime expen­diture is transfer payments, which are payments from the government for which nothing is received in return. Social security benefits, compensation to unemployed people, benefits to senior citizens and pensions to retired govern­ment employees and freedom fighters are all examples of transfer payment programmes.

Interest paid on borrowed funds is some other blazon of regime expenditure. At times, government units finance some of their acti­vities through borrowing, and the interest on those borrowed funds is an expense that the government unit of measurement must run into.

The government may also incur expenses for running or contri­buting to the operation of diverse public enterprises such every bit cost roads, airports, and hospitals, or for providing intergovernmental grants. These grants are given primarily by the Central Government to State and Local Governments.

The main heads of Central Authorities'due south acquirement expenditure are:

(i) Defense force Services,

(ii) Evolution Services,

(iii) Administrative Services,

(iv) Debt Services, and

(five) Assistance to States.

Defense Services:

They account for nearly 20% of the total revenue expenditure of the Key Government in India.

General Services:

The expenditure on civil administrative services as also on tax collec­tion, police, pensions, etc. come up under this heading.

Social and Development Services:

Expen­diture on social and development services are now the most of import caput of Central Government'south revenue expenditure and fall into the following 2 broad groups of services:

(a) Social and Community services, which seek to improve and build-upwards the human being capital and social infrastructure of the country; and

(b) Economic Services, which are directed toward the development and strengthening of the economic infrastructure and other economic activities in the land.

Interest Payments:

India has been raising more than and more loans — both internal and foreign — for the execution of its development plans. So information technology has to pay interest on borrowed funds.

The Principles of Public Expen­diture:

Public expenditure refers to the expenditure incurred by the Central Government. There are dissimilar types of such expenditure. The usual distinction is between consumption expenditure and investment expenditure. Another distinction is between revenue expenditure and uppercase expenditure.

Public expenditure is likely to have bene­ficial outcome on society, i.e., reduction of income inequality, control of business organisation cycles, and accomplish­ment of foil employment and and then on.

It is guided by the following v principles:

one. Economic Development:

A developing country like Republic of india must undertake various projects such as route and span structure, irrigation dams, power plants and then on. These found infrastructure of the economy or social overhead majuscule and are of vital impor­tance for accelerating the pace of economic development. Investment in such projects is so high and return from them is so low that private investors practise not undertake such projects voluntarily.

The government usually takes a long view of the economy's require­ments. So it is imperative that the government undertakes such projects. In India and other developing countries, such development projects are undertaken through the planning system.

2. Fiscal Policy:

Public expenditure creates jobs and incomes during depression and unem­ployment. This is why Keynes advocated the policy of increasing public expenditure for creating effective demand and thus helping the economic system to achieve foil employment.

Contrarily, a cutting-back in government expen­diture is necessary when the economy faces the problem of aggrandizement. Such variation in public expenditure is necessary to control business cycles or to stabilise the economy. So, variation of public expenditure is a part of the anti-cyclical fiscal policy.

iii. Maximum Social Advantage:

One of the objectives of a modern government is to attain the social goal of income equality. For this, it is necessary to reduce poverty and inequality. This is why the government transfers incomes or purchasing power from one section of guild to some other through various tax-subsidy measures. The government collects acquirement, mainly, by imposing taxes and selling bonds. The coin raised in the process is utilised to pay wages and compensation of government employees and the suppliers of various materials to authorities departments and public sector undertakings.

Moreover, in a modern mixed economy, payments are made to certain sections of society without requiring them to provide anything to the regime in exchange. Such payments are chosen transfer payments. Examples are unemployment compensation, widow pensions, subsidies (concessions) to the freedom fighters, payments to needy families, the handicapped and so on.

Moreover, outright subsidies are as well paid to the pocket-size farmers, artisans and other weaker sections of order at the cost of the tax-payers. Such measures are to taken to improve the existing pattern of income distribution or for reducing income inequality.

Since the marginal (extra) utility of every rupee to a poor man is much greater than that to a rich man, appropriate use may be made of financial (i.e., the government's combined revenue- expenditure) policy to secure maximum social advantage. Nevertheless, care has to be taken to ensure that taxes are not likewise high to have unfavourable effects on incentives to produce, earn and save.

Richard Musgrave has suggested that the authorities should use public expenditure- cum-tax policy to maximise society's welfare, i.e., to secure the maximum possible internet advan­tage. This implies that the government should make the deviation betwixt the do good of public expenditure and social cost involved in raising the money (to finance the expen­diture) equally large as possible.

Withal, in practise, it is very difficult to measure or quantify social welfare.

iv. Economy:

It may besides be noted, in this context, that it is non just the corporeality of public expenditure that is incurred which is of impor­tance to the economic system. What is every bit — if not more — important is the purpose of such expenditure.

The use or purpose of such ex­penditure determines the adequacy and effec­tiveness of such expenditure. Excessive expen­diture may cause inflation. Moreover, if the government has to impose taxes at high rates, there will be loss of incentives (mainly due to the present system of progressive tax). And so it is necessary to avoid unnecessary expenditure to the maximum possible extent.

It is very of import to drastically curtail or totally avoid wasteful expenditure that causes uneconomic use of resources.

There are two ways of securing such 'eco­nomy' in government expenditure:

(i) The almanac upkeep of the Central Government must lay down the corporeality to exist spent for detail purposes and the regime ser­vants or departments should not be permitted to spend in backlog of the budgetary allocations.

(two) As before long as the budget grants are spent, the accounts are to be scrutinised by the Public Accounts Committee of the Parliament.

v. Avoidance of Harmful Furnishings:

Finally, it is of considerable importance to ensure that government expenditure does not accept whatever injurious effect on production and distribution. Information technology is every bit vital to ensure that the govern­ment expenditure is solely in the public interest and does not serve any private interest or that of any grouping of persons.

stokesdomess.blogspot.com

Source: https://www.economicsdiscussion.net/government/expenditure-government/government-expenditure-subject-matter-categories-and-principles/12788

Share this post