Part B

• Expenditures cover the provision of public goods such as national defense and foreign policy.
• Expenditures - also covers merit goods such as public education, hospitals, and healthcare, social welfare, and to some extent socialized housing.
• Government expenditure - seeks to reduce negative externalities through various forms of regulation, incentives, and penalties.
• Government expenditures - helps in redistributing income and wealth through subsidies and various poverty alleviation mechanism.
• Government expenditures also be utilized to subsidize industries through entrepreneurial assistance for small and medium enterprises or bailouts during recession.
• Government action could increase aggregated demand through support for private industries, widespread infrastructure projects, and cash transfers.
• During crises, government expenditures are necessary to deal with the extraordinary circumstances.
• Much of public spending is at national level.
• Spending may categorized into three:

  • Mandatory spending
  • Discretionary spending
  • Interest on government debt
• Mandatory spending - these are the expenditures on program that are created through authorization laws. Congress must provide funds to keep these programs and/or mandates functional.
• Mandatory spending can only be changed by making changes to the laws that created them.
• Mandatory spending would pertain in Philippines to legislation-specific expenditures.
• Mandatory spending includes the Free Tuition Act, K-to-12 Education, and various scholarships run by CHED, DepEd, and DOST. As well as universal healthcare.
• Discretionary spending - are optional and at the hands of Congressional representative during annual budget deliberations.
• Discretionary spending includes infrastructure, benefits received from various programs, operational expenses of different departments and agencies, and assistance programs.
• Spending may either be current or capital.
• Current spending is a short-term and annually renewed. Often, spent on wages and raw materials.
• Capital spending accrues long-term as it spent on physical assets and "social capital".
• Discretionary spending is more flexible and can change from year to year depending on the government priorities.
• Interest on government debt - government may spend more than it can collect from taxes and tariffs / customs duties.
• To fund additional expenditures, government issues debt in the form of treasury bills and bonds.
• Government has to encourage individuals and the private sector to lend money to finance public needs; as such, interest rates are set.
• Spending particularly discretionary public spending could stimulate the macro economy.
• Public spending particularly on social capital would have to wait several years before the gains and positive return start manifesting in the economy.
• Government spending tends to be inflationary and it generates a debt burden often at the expense of the future generations.
• Unfunded mandates are rules or requirements imposed by central government without providing necessary funds to implement them.
• Mandates are policy provision that impose an "enforceable duty" on local governments and they become "unfunded" when central governments are not "willing to back up them with funds" (Kelly and Gullo, 2002)
• Unfunded mandates are present because we have an evolving government and learning process, but also because the central government is most likely hesitant to give up control to LGUs (Joaquin 2001)
• The US has an Unfunded Mandates Reform Act (UMRA) wherein agencies are required to provide due notice and publication proposed rulemaking for federal mandates that may require local spending.
• Another significant challenge to government, particularly allocating expenditures, is unemployment.
• Labor force becoming unproductive or without a job, we called this unemployment.
• The International Labor Organization (ILO) specifically defines the concept as follows:

  • Individuals without work during a reference period (usually four weeks), which mean they are not in paid employment or self-employment.
  • Available for work
  • Seeking work and have taken specific steps in that period to seek paid employment or self-employment.
• We measure labor force participation rate as the proportion of the working age population that is in labor force.
• Labor force participation rate = (labor force)/(population of working age)

  Labor force participation rate = (employed + unemployed)/(population of working age)
• Employment rate is a proportion of the population of working age that are paid in work or self-employed.
• employment rate = employed/(population of working age)
• Unemployment rate is measured as the proportion of the labor force that is unemployed.
• unemployment rate = unemployed/(labor force)
• Three types of unemployment:

  • Frictional unemployment
  • Structural unemployment
  • Cyclical unemployment
• Frictional unemployment - often this happen when new graduates enter the workforce or former workers re-enter the labor force.