Public expenditure

Capital Expenditure

Government spending on long-term investments and assets, such as infrastructure projects.

Current Expenditure

Day-to-day government spending on recurring items, salaries, maintenance, and providing public services.

Transfer Payments

Government payments made to individuals or groups without any expectation of goods or services in return.

Reasons for Changing Public Expenditure

Economic crises, demographic changes, and political ideologies that influence government spending priorities.

Public Expenditure & GDP: Productivity & Growth

Investment in education and infrastructure that boosts economic performance.

Public Expenditure & GDP: Living Standards

Welfare programs that improve quality of life.

Crowding Out

Excessive government borrowing may reduce private sector investment.

Fiscal Policy

Government adjustments in spending and tax rates to influence the economy.

Budget Deficit

Situation where government spending exceeds revenue, leading to borrowing.

National Debt

Accumulated government borrowing over time.

Economic Justifications for Deficits

Deficits can stimulate demand, cushion economic shocks, and fund long-term investment.

Risks of High Debt

Increased interest payments, potential tax hikes, and burden on future generations.

Arguments for Austerity

Reduces long-term debt, controls inflation, and encourages private sector growth.

Arguments Against Austerity

Can slow economic recovery and reduce public service quality.

Progressive Tax

Higher income earners pay a larger percentage of their income in taxes.

Proportional Tax

Same tax rate for all individuals, regardless of income level.

Regressive Tax

Lower-income groups bear a higher burden relative to their income (e.g., VAT).

Impact on Aggregate Demand & Supply

Tax changes influence consumer spending, investment, and economic incentives.

Fiscal Multiplier

Measures how much GDP increases with additional government spending.

Global Debt Comparisons

Different countries have varying public debt levels and tax burdens, impacting economic stability.