Public expenditure

• Public expenditure


  Everything the government spends money on such as building schools, social housing, wages, and benefits
• Capital expenditure

  Spending on long-term projects or buying of long-term assets that have long-term awards such as the HS2 railway, schools, hospitals, defence, infrastructure, things which the government knows will be used for over a year
• Capital expenditure


  • Increased spending on schools and universities to increase human capital
  • Green projects such as solar panels and wind turbines to prevent increasing pollution in big cities
• Current expenditure

  Day-to-day government spending that keeps the economy rolling such as wages for hospital staff, drugs and medications, teacher salaries, student loans – recurring costs
• Transfer payments

  What the government spends without getting anything in return such as benefit payments, JSA, subsidies
• Factors influencing public expenditure

  • Ageing population
  • Incomes
  • Political values
• Ageing population

  • Governments will increasingly need to prioritise pension payments and healthcare as older people are more likely to require medical treatment
  • If the government have a young population, they will have to increasingly prioritise education spending to increase human capital and become productive workers
• Incomes

  Increased incomes lead to increased demand for government goods and services, meaning demand is very income elastic (Wagner's Law)
• Incomes

  • French population has very high incomes and demands high-quality public goods
  • In developing countries like Burundi and Bangladesh, low incomes mean low demand for public sector goods
• Some public expenditure goes towards inferior goods such as public transport or government education. As incomes increase, demand for these will decrease
• Political values

  If the population trust the government, they are willing to pay high taxes to fund high quality public services. If the population have low trust in the government, they are not willing to pay high taxes and will vote for low tax politicians who cut public expenditure
• Increased public expenditure on healthcare

  Increases AD, increases productivity and economic growth
• Inefficient use of healthcare funding, such as on bureaucracy, has no effect on productivity or growth