Theories in public administration linkedin slideshare. The objective of this paper is to give an appraisal of four theories of government expenditure growth and to provide an overview of the implications that. These theories, however, have received less attention compared with those of value and distribution. As mentioned above, there are three basic theories in public expenditure. First, it places public expenditure management pem in the broader context of the role of the state, good governance, macroeconomic policy, and the changing environment especially in information and communication technology. The study of the manner in which public expenditure is classified, the principles guiding publicexpenditure canons of public expenditure, causes of growth and effects of public expenditure. Diagrammatic exposition of a theory of public expenditure paul a. Earlier theories public finance narrow definition ofthe functions to be carried out by. Over the years, several regression analyses based on crosssection and panel data have been used to explain the.
Theory of public expenditure queuing theory, and game theory, since excellent treatments are now available. Such expenditures are made for the maintenance of the governments as well as for the benefit of the society as whole. These two theories observe practical relationship between two variables in different perspective. Theories of taxation benefit theory cost of service.
The paper first considers these theories of economic development and shows how significant ais are in developing countries in the global economy. However the principle of maximum social advantage is the most fundamental canon of public expenditure. Two main theories that explain the long run relationship between the two variables. Public expenditure has a great bearing on economic development and social welfare of a country. Firstly, government expenditure has been classified into revenue expenditure and capital expenditure. Adolf wagner a noted german political economist 18351917 propounded an empirical law to analyses and explains the trend in the growth of public expenditure. Until the 19th century, public expenditure was limited as laissez faire philosophies believed that money left in private hands could bring better returns. Challenges and opportunities by teresa curristine, zsuzsanna lonti and isabelle joumard this article examines key institutional drivers that may contribute to improving public sector efficiency and focuses on one of them in more.
Public expenditure issues are encountered wherever there is a discussion of government, the public sector, and development. Elements of a positive theory of public expenditures jstor. Any comprehensive economic theory of public expenditure growth has to explain the. It is considered a sound or orthodox principle of public expenditure that as far as possible public expenditure should be kept well within the revenue of the state so that a surplus is left at the end of the year. A survey of the theory of public expenditure criteria. Theory of public expenditures sage journals sage publications. In fact some writers have compared public policy to a ship of. Effects of public expenditure on production, distribution. Theories of public expenditure and economic growth. To this end, the empirical specification and the design of the identification strategy should be chosen independently from any specific theoretical mechanism behind differential effects of austerity. Revenue expenditure is a current or consumption expenditure incurred on civil administration i. The following classification is a based on these different views.
For achieving this canon, public expenditure should be planned according to specific programmes and prioritized as per the availability of funds. Expenditure and taxbased approaches 145 different theories. Public policy means laying down general set of goals, objectives, principles through the pronouncements of public authorities, governments. Explaining the phenomenon of the growth of government expenditure has always been a wide field in the science of public finance. Different economists have looked at public expenditure from different point of view. Public expenditure is spending made by the government of a country on collective needs and. Dalton, public expenditure tends to affect the level of production in the following manner. Comparisons of aggregate health expenditure across different countries have become popular over the last three decades as they permit a systematic investigation of the impact of different institutional regimes and other explanatory variables.
Keynes and the financing of public works expenditures. Public expenditure should aim at reducing the inequalities of wealth distribution. This political or administrative pur veyance requires appropriations which authorize and limit the different pur. A comprehensive program of re distributing income so as to achieve a maximum of the communitys social welfare function was introduced. Aspects of public expenditure theories 333 this planet. Review of theories on government expenditure economics essay. To this end, the empirical specification and the design of the identification strategy should be chosen independently from any specific theoretical mechanism behind differential. In 1961, peacock and wiseman elicited salient shaft of light about the nature of increase in public expenditure based on their study of public expenditure in england.
The expenditure in the capital budge is incurred on building assets of a lasting character, like construction of canals, dams, water storage, roads and railway lines, public buildings of various kinds, ports, etc. Every person must be obliged to pay, directly or indirectly, something to. While expenditure policy is trying to find an answer for the question what is to be done, ex. Different models of economic growth stress alternative causes of economic growth. The argument for public works in the 1930s went a good deal further than that of the present day. The aim of those theories is not only to explain government growth but also to find solutions in order to distribute public expenses more efficiently and to derive the optimal size of the government, finally. The importance of public expenditure management in modern budget systems 283 izing sources productively, effectively and sensitively allen, tommasi, 2001, p. The key macroeconomic imbalance in the republic of serbia is largely conditioned by an increasing share of fiscal deficit in gdp. Diagrammatic exposition of a theory of public expenditure. As this growth is not always welcomed and justified in terms of welfare and efficiency considerations economists developed a series of different theories seeking to explain this phenomenon. Taxation and public expenditure policies are used by the government to reduce inequalities. Their results reveal that government total capital expenditure, total.
Jul 31, 2017 public expenditure theories are dealing with the role of public expenditure for the economic growth and development. Therefore, i explicitly assume two categories of goods. According to his theory, determination of public expenditure and taxation will happen on. What is a declared policy today may change tomorrow. Theory and econometric evidence explaining public expenditure. In the field of public finances, the issue of potential links between government revenue and. A critical appraisal of the theories of government. Keys classic 1940 paper on the lack of a budgetary theory and. Classical theory adam smith placed emphasis on the role of increasing returns to scale economies of scale. Ghosh and gregoriou 2008 and benos 2009 had different outcomes even if they used the same methodology the generalized method of moments. Government expenditure and government revenue the causality. Mercantilism wealth of a nation determined by the accumulation of gold and running trade surplus. It is considered a sound or orthodox principle of public expenditure that as far as possible public expenditure should be kept well within the revenue of the state. Classification of public expenditure refers to the systematic arrangement of different items on which the government incurs expenditure.
This section highlights same basic theories that have been used to support the effects of public expenditure on economic growth. Third, the macroeconomic decision models developed by frisch, tinbergen, and theil are not discussed, even though they are closely related conceptually. A second characteristic is sometimes added, specifying that consumers cannot be excluded from consuming the public good once it is produced. According to this theory, the state should levy taxes on individuals according to the. Holcombe a public good, as defined by economic theory, is a good that, once produced, can be consumed by an additional consumer at no addi tional cost. Ghosh and gregoriou 2008 showed that the current component of public. Over the years, the world bank has invested considerable resources in analyzing public expenditures and the impacts of different interventions on sustainable development. Public expenditure there are many conflicting views regarding the effects of public expenditure on economic growth. Classical economists had developed advanced theories of public debt. This pdf is a selection from an outofprint volume from the national. This article throws light upon the top three theories for the analysis of public expenditure growth. The fiscal deficit is the result of high public spending and the disharmonious. A survey of the theory of public expenditure criteria nber. Expenses incurred by the public authoritiescentral, state and local self governmentsare called public expenditure.
The term public expenditure refers to the expenses incurred by the government for its own maintenance and also for the preservation and. Pdf going by adolph wagners theory, increased in public expenditure. The economists have put forward many theories or principles of taxation at different times to guide the state as to how justice or equity in taxation can be achieved. Keynes and others were concerned with not only the impact of the multiplier process on aggregate demand, but equally with the implications for financing the expenditure. Each of them agreed with the necessity of public expenditure to push a country in to the path of development.
An overview of public expenditure management this chapter has two objectives. Public administration theory pa theory is the amalgamation of history, organizational theory, social theory, political theory and related studies focused on the meanings, structures and functions of public service in all its forms pa often recounts major historical foundations for the study of bureaucracy as well as epistemological. Public expenditure has been classified into various categories. Therefore when it is asserted declare to be true that public expenditure beyond a specified limit will generate inflation. Peacock and wiseman 1967 suggested that the growth in public expenditure does not occur in the same way that wagner. Aspects of public expenditure theories ucsb economics. Public expenditure is spending made by the government of a country on collective needs and wants such as pension, provisions such as education, healthcare and housing, security, infrastructure, etc. Explaining theories of economic growth economics help. A modern welfare state should incorporate all the canons of public expenditure. According to this theory, the state should levy taxes on individuals according to the benefit conferred on them. Following observations may be noted in this regard.
Public expenditure theories are dealing with the role of public expenditure for the economic growth and development. A clear distinction occurs between expenditure management and expenditure policy. The theory holds that by increasing taxes and restricting credit it is possible to cut down the expenditure of the private sector and thereby to accommodate increased public expenditure by releasing resources for private use. Nor is the theory of public expenditures, advanced by wicksell and others, and developed.
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