Meaning of Public Expenditure, Difference between Public and Private Expenditure

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Public Expenditure

Meaning of Public Expenditure

The Term Public Expenditure refers to the expenses incurred by public authorities- Central, state and local governments for their own maintenance and for the discharge of their duties towards the economy and the society as a whole. Public expenditure occupies a very important place in the study of public finance. It is the end of all the financial activities of the government. All other branches of public finance revolve around public expenditure. Public revenue and public debt are collected and raised for the ultimate aim of financing public expenditure.

Public expenditure is incurred basically for the satisfaction of the collective of the citizens or for the promotion of economic and social welfare. Public expenditure includes development functions such as education, public social securities, irrigation, canal, roads, bridges, etc.

In developing countries, public expenditure policy not only accelerates economic growth and promotes employment opportunities but also plays a useful role in reducing poverty and inequalities in income distribution.

Objectives of Public Expenditure

Throughout the nineteenth century, most governments followed laissez-faire economic policies, and their functions were only restricted to defending the country from foreign aggression and maintaining law and order. The size of public expenditure was very small. Therefore, Classical economists did not analyze the effects of public expenditure in depth. But now the expenditure Of governments all over the world has significantly increased. Modem economists have started analyzing the effects of public expenditure on production, distribution, national income, and employment.
In the early twentieth century, J. M. Keynes advocated the role of public expenditure in the determination of the level of income and its distribution. Public expenditure can be used as a tool to raise aggregate demand and thereby to get the economy out of recession. On the other hand, through changes in public expenditure, aggregate demand can be controlled to check inflation. Public expenditure can also be used to improve income distribution, to direct the allocation of resources in the desired lines, and to influence the composition of the national products.
In, the present era a democratic government has to perform many functions within its territory for the betterment of its citizens.which might not otherwise be provided by the private sector.

Prof. Dalton classified the aims and objectives of public expenditure into two parts as :
(a) Security of human life against the external aggression and internal
disorder and injustice;
(b) Promoting the maximum social welfare of the community.

Therefore. its goal is maximizing social and economic welfare on one side and controlling the depressionary tendency in the market economy on the other side. Public spending is also designed to optimize the level Of investment to maintain full employment with growth. It also tends to accelerate the tempo of economic development by making infrastructures and increasing capital formation for further augmenting. To achieve these aims, Prof Musgrave has assigned different functions to public expenditure in a mature economy. They are
(a) to Secure a re-allocation of resources and to check in imperfection in the market economy.(b) to make measures to reduce inequalities and for re-allocation of
(c) to avoid business fluctuations and to maintain economic stability.
(d) to maintain commercial activities for the benefit of the community.

Difference between Public Expenditure and Private Expenditure

Though, both public authorities and private individuals do not like to waste expenditure without expecting anything in return. It means each will try to attain maximum possible returns with the minimum possible expenditure, yet there are some points of difference given below :

  1. public expenditure is more elastic than private expenditure. In other words, public expenditure determines the amount of income whereas private expenditure is determined by the individual’s income. private finance whether of firms or individuals, start with a given income plan as the framework within which expenditure must be planned; public finance on the contrary starts with a given expenditure plan and the authorities adjust their income by means of taxes and resources to match the expenditure.
  2. Public expenditure is not based on profit motive whereas private expenditure is strictly based on the motto of maximum profit.
  3. Public expenditure is dependent directly on the state revenues and the other is directly dependent on an individual’s income.
  4. State is the guardian of social welfare, thus, public expenditure is made for social benefits like education, relief to the poor public health, etc. while private expenditure is limited to a personal level.
  5. State does not practice for economizing during the course of spending public revenue. Thus, government officials are extravagant and spendthrift. But this is not the case with an individual. Ordinarily, individual thinks many times before incurring expenditure.
  6. Public expenditure is influenced by various politically motivated and
    social aspects while there is no such consideration or influence on private Expenditure.

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