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>. | ||
==Examples of government expenditures== | ==Examples of government expenditures== | ||
One category mentains thinghs like '''infrastructure''', that means roads, airports, R&D | One category mentains thinghs like '''infrastructure''', that means roads, airports, R&D and so on. | ||
These exampels improve the output. | |||
Other categories include '''[[education]]''' to achieve a better technological development. | |||
These two examples have a huge impact on the long-term nature of the economy <ref>Gloom G. (1997), pg. 201-203</ref>. | |||
One topic, public health expenditures got more important through the covid pandemic. | One topic, public health expenditures got more important through the covid pandemic. | ||
Recent literature | Recent literature indicates, that this category increased a lot, but the positive effect may not be statistically significant<ref>Fu, Q., & Chang, C. P. (2021), pg.3 </ref>. | ||
==Government spending in the IS-LM Model== | ==Government spending in the IS-LM Model== | ||
If the government decides to increase its spending, that's a kind of extended fiscal policy. | 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. | 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. | 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. | 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. | 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. | 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 <ref>Richert, R.(2021), pg. 99-103</ref>. | 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 <ref>Richert, R.(2021), pg. 99-103</ref>. | ||
==Impact of Globalization on the composition of Government expenditures== | ==Impact of Globalization on the composition of Government expenditures== | ||
Different kinds of government expenditures | Different kinds of government expenditures respond differently to [[globalization]]. | ||
Through globalization, the governments got more pressure and decide to concentrate more on capital expenditures. | 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 | As a result, it shows that using econometric analysis, there is '''no effect''' 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<ref>Dreher, A., Sturm, JE. & Ursprung, H.W. (2007), pg. 282/283 </ref>. | ||
==Government expenditures in Poland== | ==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. | 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. | 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. | ||
| Line 47: | Line 47: | ||
==Footnotes== | ==Footnotes== | ||
<references/> | <references/> | ||
{{infobox5|list1={{i5link|a=[[Budgetary surplus]]}} — {{i5link|a=[[Price stability]]}} — {{i5link|a=[[Over-valued currency]]}} — {{i5link|a=[[Galloping inflation]]}} — {{i5link|a=[[Net Borrower]]}} — {{i5link|a=[[Crowding out effect]]}} — {{i5link|a=[[Effective demand]]}} — {{i5link|a=[[Public funds]]}} — {{i5link|a=[[Austrian business cycle theory]]}} }} | |||
==References== | ==References== | ||
* Dreher, A., Sturm, JE. & Ursprung, H.W. (2007), [https://link.springer.com/content/pdf/10.1007/s11127-007-9223-4.pdf ''The impact of globalization on the composition of government expenditures: Evidence from panel data''], Public Choice. | * Dreher, A., Sturm, JE. & Ursprung, H.W. (2007), [https://link.springer.com/content/pdf/10.1007/s11127-007-9223-4.pdf ''The impact of globalization on the composition of government expenditures: Evidence from panel data''], Public Choice. | ||
* Fu, Q., & Chang, C. P. (2021),[https://a-e-l.scholasticahq.com/article/21147.pdf ''How do pandemics affect government expenditures?''], Asian Economics Letters. | * Fu, Q., & Chang, C. P. (2021),[https://a-e-l.scholasticahq.com/article/21147.pdf ''How do pandemics affect government expenditures?''], Asian [[Economics]] Letters. | ||
* Gloom G., Ravikumar B. (1997), [https://www.sciencedirect.com/science/article/abs/pii/0165188995009299 ''Productive government expenditures and long-run growth''], Journal of Economics Dynamics and Control. | * Gloom G., Ravikumar B. (1997), [https://www.sciencedirect.com/science/article/abs/pii/0165188995009299 ''Productive government expenditures and long-run growth''], Journal of Economics Dynamics and Control. | ||
* Richert, R. (2021), [https://doi.org/10.1007/978-3-662-63141-6_3 ''Makroökonomik - Schnell erfasst''] Springer Gabler. | * Richert, R. (2021), [https://doi.org/10.1007/978-3-662-63141-6_3 ''Makroökonomik - Schnell erfasst''] Springer Gabler. | ||
* World Bank, (2003), [https://openknowledge.worldbank.org/handle/10986/13920 ''World Development Indicators 2003''], World Bank. | * World Bank, (2003), [https://openknowledge.worldbank.org/handle/10986/13920 ''World Development Indicators 2003''], World Bank. | ||
[[Category:Macroeconomics]] | |||
[[Category: | |||
{{a|Annamarie Dietz}} | {{a|Annamarie Dietz}} | ||
Latest revision as of 23:06, 17 November 2023
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 and so on. These exampels improve the output. Other categories include education to achieve a better technological development. These two examples have a huge impact on the long-term nature of the economy [4].
One topic, public health expenditures got more important through the covid pandemic. Recent literature indicates, that this category increased a lot, 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 respond 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 effect 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
| Government expenditure — recommended articles |
| Budgetary surplus — Price stability — Over-valued currency — Galloping inflation — Net Borrower — Crowding out effect — Effective demand — Public funds — Austrian business cycle theory |
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
