Finance

The Reasons For Increase In Public Expenditure

The Causes For Increase In Public Expenditure

Excessive and unplanned public expenditure create burden on the people of a state. So, any increase in public expenditure should be carefully monitored and controlled in order to lower the public burden. The classical economists were of the view that the volume of public expenditure should be kept low.

Adam Smith, David Recardo, H. Pernell and other economists suggested that the Government must keep the level of public expenditure at the minimum possible level. In their view, the Government is responsible only to maintain peace and social order and it should not spend more than what is necessarily required in the performance of its responsibility towards the nation.

According to H. Pernell, “Every particle of expenditure beyond what necessity absolutely requires for the preservation of social order and for protection against attack is waste and unjust and oppressive imposition on the public.” Thus, very low treatment was given to public expenditure before 20th Century. Increase in public expenditure should be controlled in order to lower the public burden. The theory based on individualism could not find place in twentieth century. There started abnormal increase in the public expenditure of most of the Government.

In most of the countries, popular Government took over the reign and they were entrusted with more responsibilities towards their people and less power. The feeling of being progressive acted as a catalyst to the increase in public expenditure. The increase can be well justified on the following grounds.

The Reasons For Increase In Public Expenditure

(1) Expansion of State Activities: The Government in most of the countries took charge of the new activities which required increased expenditure. State activities should be carefully monitored with respect to their necessity, to reduce public burden.

(2) Increase in population: This is a general cause to increase the expenditure. More the people, more will be be requirements for public infrastructures and thus the expenditure.

(3) Increased Expenditure on War: For the protection of countries from the threats of alien enemies need more expenditure on defense. Increasing needs of defense and maintenance of public utilities compelled the Government to spend more.

(4) Rise of Democracy: Democracy yoked the Governments with the burden of creating everything of the people.

(5) Rise in price level. Since the beginning of the Second World War, the price level has been showing an upward trend in almost all the countries of the world. Like individuals, the Government has also to buy goods and services at higher prices. It has to spend more on various facilities and services provided by the Government. This results in a considerable increase in public expenditure.

(6) Welfare States: The concept of State has changed considerably in 20th century. The 19th century concept of Police State has changed to welfare State in 20th century. The main objective of such a States to promote the economic, political and social well being of its citizens. As a result of growing social responsibilities, it has to spend more on welfare items like social insurance, unemployment relief, free medical and educational aid etc. Thus, the States being welfare States have to spend more and more on welfare facilities.

(7) Economic Planning: Every economy is trying to be self sufficient and economically strong. In order to achieve this end, planning has been taken as recourse. Planning involves a large amount of expenditure at its various stage i.e. establishment of a central Planning Machinery (e.g., Planning Commission), formulation of a plan; its execution and evaluation. We can cite the example of economic planning in India and the public expenditure involved therein.

(8) Growth of Public Sector: It has now become accepted that the rate of economic growth rate be stepped up only through the public sector. There are certain strategic units and public utility concerns public can only be owned, controlled and managed by the Government. The private entrepreneurs cannot be relied upon. For example defence, communication, electricity and water etc. can be better managed only by the Government in public interest. In the national interest, the Government nationalized the private industries and pay adequate compensation to their owners. There are occasions when Government takes over the control of sick units. This involves a huge public expenditure.

(9) Basic infrastructure: For Sound economic growth, the Government of a country has to spend a lot on creating basic infrastructure conductive to growth. The Government has to develop rail and road transport system, build dams, bridges, canals, power generation plants etc. to facilitate the growth of economic activities in various sectors of the economy. Unless basic infrastructure is provided, industrial and economic growth cannot be imagined. All the activities involve enormous public expenditure. Thus, the public expenditure of modem Governments has increased enormously in 20th century.

You May Also Like:

Tags
Show More

Related Articles

Back to top button
Close
Close

Adblock Detected

Please consider supporting us by disabling your ad blocker