Government expenditure: Difference between revisions
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'''Government expenditures''' means all the expenditures of | '''Government expenditures''' means all public sector the expenditures of a country. | ||
This definition includes '''various sectors''':This is the addition of government consumption, investment, interest costs, and subsidy spending<ref>The World Bank (2003), pg.229-233</ref>. | |||
The government has a | The government has a tremendous impact on the economy, because of its size. High taxes and subsidies provide a benchmark for controlling the economy. A large budget deficit makes it harder to control the money supply, making it more likely that inflation will rise <ref> The World Bank (2003), pg.181</ref>. | ||
==Total expenditure of the government== | ==Total expenditure of the government== | ||
This definition includes current and capital expenditures but | This definition includes current and capital expenditures, but excludes loans and the corresponding repayments. | ||
* '''Goods and | * '''Goods and Services''': This means all government payments for goods and services, such as workers' wages. | ||
* '''Wages and | * '''Wages and Salaries''': defines only the cash payments in return for services before tax. | ||
* '''Interest payments''': payments made to sectors for borrowing money. | * '''Interest payments''': payments made to sectors for borrowing money. Government loans are not included. | ||
* '''Subsidies and other | * '''Subsidies and other Transfers''': includes all non-refundable transfers to public and private companies. in addition. It also includes the costs to cover liquidity shortfalls. | ||
* '''Capital expenditure''': This | * '''Capital expenditure''': This is defined as an increase in fixed assets, property, intangible assets, government inventories, and non-military and non-financial assets. | ||
This is just a examples for the seperation of the categories. Literature shows also inaccurate classification<ref>World Bank (2003) pg. 223</ref>. | This is just a examples for the seperation of the categories. Literature shows also inaccurate classification<ref>World Bank (2003) pg. 223</ref>. | ||
Revision as of 18:59, 7 November 2022
Government expenditures means all public sector the expenditures of a country. This definition includes various sectors:This is the addition of government consumption, investment, interest costs, and subsidy spending[1].
The government has a tremendous impact on the economy, because of its size. High taxes and subsidies provide a benchmark for controlling the economy. A large budget deficit makes it harder to control the money supply, making it more likely that inflation will rise [2].
Total expenditure of the government
This definition includes current and capital expenditures, but excludes loans and the corresponding repayments.
- Goods and Services: This means all government payments for goods and services, such as workers' wages.
- Wages and Salaries: defines only the cash payments in return for services before tax.
- Interest payments: payments made to sectors for borrowing money. Government loans are not included.
- Subsidies and other Transfers: includes all non-refundable transfers to public and private companies. in addition. It also includes the costs to cover liquidity shortfalls.
- Capital expenditure: This is defined as an increase in fixed assets, property, intangible assets, government inventories, and non-military and non-financial assets.
This is just a examples for the seperation of the categories. Literature shows also inaccurate classification[3].
Examples of government expenditures
One category mentains thinghs like infrastructure, that means roads, airports, R&D etc. Those exampels improve the output. The other category includes things like education to achieve a better technology development. Those two examples have a huge impact on the long run of a economy [4].
One topic, public health expenditures got more important through the covid pandemic. Recent literature shows, that there was a big increase in this category, but the positive effect may not be statistically significant[5].
Government spending in the IS-LM Model
If the government decides to increase its spending, that's a kind of extended fiscal policy. In the classical IS-LM Model, the IS Curve shifts to the right due to this action. Then you can obtain some consequences. First, the income of the households increases. The overall demand increases then too. That means the demand for money is also higher. Second, the interest rates are increasing, because to keep balance through the first effect in our model. But after the households recognize the higher interest rates that automatically reduces their income. Furthermore, the demand for investment gets less. This has again an effect on the interest rates. If there is a reduction in income the demand for money will be less.
Normally fiscal policy is effective, but the expansive net effect is weakened through a partial crowding out effect through governmental demand. Overall fiscal policy is in the model more effective, if the interest rate elasticity of investment demand is lower and if the interest rate elasticity of money demand is higher [6].
Impact of Globalization on the composition of Government expenditures
Different kinds of government expenditures react differently to globalization. Through globalization, the governments got more pressure and decide to concentrate more on capital expenditures. As a result, it shows that using econometric analysis, there is no impact on the composition of government expenditures through globalization. Literature shows three possible explanations for this result. The efficiency and compensation effects could neutralize each other. Additionally, there could be indirect effects between the expenditure categories. The last reason the effects of globalization may not exist is because of overstating the topic[7].
Government expenditures in Poland
If you compare developing and high-income economies, one of them is Poland, the bigger part of the government expenditure is used for subsidies and other ongoing transfers. The country with the highest amount of this expenditure is the Czech Republic, with approximately 74%. Followed by Poland with a percentage of about 70. Military expenditures percentage of government expenditures: If you compare the years 1992 and 2001 there was a reduction of this percentage. 1992 the part was about 5.5% and reduced to 5.3% eight years later[8].
Footnotes
References
- Dreher, A., Sturm, JE. & Ursprung, H.W. (2007), The impact of globalization on the composition of government expenditures: Evidence from panel data, Public Choice.
- Fu, Q., & Chang, C. P. (2021),How do pandemics affect government expenditures?, Asian Economics Letters.
- Gloom G., Ravikumar B. (1997), Productive government expenditures and long-run growth, Journal of Economics Dynamics and Control.
- Richert, R. (2021), Makroökonomik - Schnell erfasst Springer Gabler.
- World Bank, (2003), World Development Indicators 2003, World Bank.
Author: Annamarie Dietz
