4.5.1 - public expenditure

what is public expenditure

government spending

3 categories of public expenditure

current expenditures - daily payments to run the public sector (wages, g+s)

capital expenditures —> investments in infrstructure + equipment (railways, schools, hospitals)

transfer payments —> payments with no g+s in exchange (benefits, subsidies)

transfer payments don’t contribute to GDP therefore are not counted in AD

4 factors affecting the size + composition of public expenditure

incomes

age distributions

expectations

2008 crash

how do incomes affect public expenditure

low incomes = low tax rev = low public expenditure

high incomes = demand for higher quality of public services

how do age distributions affect public expenditure

low birth rate + high life expectancy = ageing population = more spending on pension payments

how do expectations affect public expenditure

changing societal norms = more spending

eg. ppl wanting a digital platform for their NHS medical records cost a lot

how did the 2008 crisis affect public expenditure

lots of borrowing required to do the gov spending they needed to

repaying borrowing = had to cut expenditure in the years following

good and bad of gov spending

improved supply side (better infrastructure, health, education, etc)

equality of opportunity

better standards of living

drives innovation

helps economic growth

no incentive = less productivity

high tax required

could create inequality if spending is not spread evenly (eg. north v south)

could lead to budget deficit, and fixing that could lead to crowding out

application ab gov spending as a % of GDP

2020:

sweden - 51%

UK - 40%

thailand - 25%