4.5.1 Public Expenditure

Distinction between capital expenditure, current expenditure and transfer payments

• Capital expenditure = Long-term investment expenditure on capital projects

  • ie. HS2, infrastructures, schools

  • Contraversial: can be expensive, takes a long time

• Current expenditure = Government’s day-to-day expenditure on g&s

  • ie. Spending on wages of NHS workers

• Transfer payments = Payments made by government to groups / individuals without any exchange of g&s

  • They are used to redistribute income

  • Ie. State pensions - doesn’t expect any return from this

  • Contraversial: no returns but still good for society (reduce inequality/homeless)

Reasons for the changing size and composition of public expenditure in a global context (what factors cause differences in the amount / type of government spending in different countries)

• Economic cycle

• Emergencies / disasters

• Demographic factors

• Level of provision of merit goods (healthcare, infrastructure - transport, education)

• Level of poverty/inequality 

• Economic ideology 

• Political ideology

• Financial factors (tax revenue & bond markets confidence)

The significance of differing levels of public expenditure as a proportion of GDP on… (on goodnotes)

Evaluation for an increase in government spending 

Some economies are against government spending as government can spend money inefficiently: 

• government corruption 

• incompetence (government might not be good at knowing what to spend on)

• imperfect information (hard to have all info to make government spend money right) - info: on things needed to buy - how many red pencils needed to buy?

• change plans of government spending if change of government → money wasted on a project 

• crowding out - government taking resources away from businesses / rest of economy