The Reasons For Increase In Public Expenditure

The Public expenditure is discussed in some articles also. The Causes Responsible for the increase in Public Expenditure in recent years, more or less are:

  1. Expansion of State Activities
  2. Increase in Population
  3. Increased Expenditure on War
  4. Rise of Democracy
  5. Rise in price level
  6. Welfare States
  7. Economic Planning
  8. Growth of Public Sector
  9. Basic infrastructure
  10. And/or other activities; The first 4 points I have discussed in another post and now I want to discuss about point 5 and onward:

(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.

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