Examining the empirical relationship between government revenues and expenditures, expenditures and economic growth is a fundamental step in understanding the behaviour of nigerian public expenditure and the economy on the basis of wagners law or. Research conducted by africas pulse 20 indicated that government expenditure has been much less growthenhancing in developing countries due to high rate of poverty and increasing inequality, which. At the theoretical level, it is argued that public choice and associated theoretical constructs have improved our understanding by insisting that public expenditure growth must be explained by the utilitymaximizing behavior of the demanders and suppliers of public. Until the 19th century, public expenditure was limited as laissez faire philosophies believed that money left in private hands could bring better returns. In fact, taking the period 195373, expenditure on the law, order and protective services went up by 1063 per cent as against 2656 per cent for education, 87. Public expenditure for the purchase of goods and services is an injection to the economy that has an impact on economic growth. Section 3 presents the dimensions and importance of the. Population growth is a major and dominant contributory factor to the growth of expenditure as government policies are geared towards narrowing, as. A critical appraisal of the theories of government expenditure growth. Public economics builds on the theory of welfare economics and is ultimately used as a tool to improve social welfare public economics provides a framework for thinking about whether or not the government should participate in economic markets and to what.
The impact of public expenditure components on economic. Public expenditure has been classified into various categories. The model for the development of the public expenditure growth the models of musgrave and rostow are generalizations obtained as a result of. Budget theory in the public sector edited by aman khan, and w. Moreover, the public goods and services provided by the government for nonmilitary purposes, such as education, infrastructure, and laws, are often regarded as important factors for economic growth. Public expenditure, mediumterm expenditure system, fiscal discipline, budget concept. Clarity of nature of the output macromodels wagners law. Public economics or economics of the public sector is the study of government policy through the lens of economic efficiency and equity. Richard musgrave, the harold hitchings burbank professor of political economy, emeritus, was the leading public finance economist of his generation. Changes in population growth, according to musgrave and musgrave 1989, generate changes in age distribution and this trend is reflected in expenditure for education as well as care for the aged.
In theory, the causes of expenditure growth are a result of increased need in the transport, education, the introduction of welfare programmes and the rise in defense spending musgrave and musgrave, 1982. The effects of economic growth on government expenditure have been examined by many empirical studies using various testing procedures and. Revenue expenditure is a current or consumption expenditure incurred on civil administration i. A clear definition of the role of the public sector should be established before expenditure responsibilities can be assigned. This article throws light upon the top three theories for the analysis of public expenditure growth. A critical appraisal of the theories of government expenditure growth eckhard scharmer seminar paper economics finance publish your bachelors or masters thesis, dissertation, term paper or essay. The size and growth of government spending world bank. Theoretical and empirical analysis of public expenditure. Government expenditure and economic growth in south africa. Musgrave theory of public expenditure growth this theory was propounded by musgrave as he found changes in the income elasticity of demand for public services in three ranges of per capita income. Peirce privatization, nationalization, and aspects of transition heinz grossekettler social insurance richard e. Another hypothesis regarding the growth of public expenditure was put forth by peacock and wiseman, in their empirical study of public expenditure in u. Assessing the impact of public spending on growth an empirical analysis for seven fast growing countries. Nor is the theory of public expenditures, advanced by wicksell and others, and developed further by samuelson and musgrave, treated here.
Allan sc hmid economic analysis and efficiency in public expenditure 1 19 53 77 109 9 165 195. The current paper will return to this issue in the next section. The relationship between public expenditure and economic. As a central instrument of policy, it must pursue all three overall economic policy goals. Review of theories on government expenditure economics essay. Such expenditures are made for the maintenance of the governments as well as for the benefit of the society as whole. Therefore when it is asserted declare to be true that public expenditure beyond a specified limit will generate inflation. Bird and others published public finance in theory and practice find, read and cite all the research you need on researchgate. As noted, public expenditure management is instrumental in nature. Financial stability calls, among other things, for fiscal discipline.
The impact of government expenditure on economic growth. Approaches to the analysis of government expenditure growth. Public expenditure public debt and financial administration. This web site will be regularly updated and it is intended to make it publicly available in the near future. With regards to the namibia economy, in 2014, the economy grew at 4. This pdf is a selection from an outofprint volume from the national. It is not designed to show the efficiency of public output supply. Recent studies by adewara and oloni 2012, ebiringa and charlesanyaogu 2012, egbetunde. As a pedagogic teaching device the model is a static one. Public expenditure theories are dealing with the role of public expenditure for the economic growth and development.
A critical appraisal of the theories of government. A survey of the theory of public expenditure criteria. Public expenditure is one of the important subject matters of public finance. Public expenditure analysis for citizencentered governance edited by anwar shah.
Research paper the effects of public expenditure on. Public expenditure studies about the expenditure incurred by an authority or a government. The framework of the model revealed that the growth in public expenditure is a function of economic, social and political interactions. Musgrave 1969, changes in growth rate of population. In our view, musgraves modification of samuelsons formulation,2 designed to incorporate his threebranch approach to the public sector, involves some serious technical shortcomings. Expenses incurred by the public authoritiescentral, state and local self governmentsare called public expenditure. This theory was propounded by musgrave as he found changes in the income elasticity of demand for public. Except for sax, wicksell, lindahl, musgrave, and bowen, economists have rather neglected the theory of optimal public expenditure, spending most of their energy on the theory of taxation. In the 20th century, john maynard keynes argued the role of public expenditure in determining.
Impact ofexpanding economic activities ongovernment expenditure. My concern is largely confined to public works and development projects of a sort for which measures. It is a positive model of the time pattern of public expenditure. Peacock and wiseman emphasize the time pattern of public spending trends rather than striving for a genuine positive theory of public sector growth. Public expenditure is spending made by the government of a country on collective needs and wants such as pension, provision, infrastructure, etc.
As mentioned above, there are three basic theories in public expenditure. The effect of public expenditure on the economic growth. In the scientific literature, there are two opposing views on the relationship between public expenditure and economic growth. This perceived role of the public sector in the growth and development process led to tremendous growth in public expenditure, and consequently, the public sector. Theory of public expenditure to understand the development of public expenditure, it can be analyzed through the theory of macro and micro theory. Introduction the core of public finance depends on spending someone elses money by some people. A contribution to the theory of economic growth, quarterly journal of. The quality of public expenditure and its influence on. 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. Based on wagners theory, musgrave also observes the changing role of the public sector during the development process and therefore. Musgrave hypothesis were applicable to the relationship between the fiscal variables used in.
Government spending and economic growth munich personal. Wagner redistribution, poor relief, and the welfare state a. Government expenditure and economic growth in nigeria. Despite the fact that this theory is quite plausible, it has one strong limitation which musgrave admits himself. Nowadays, the growth in public expenditure has become a compulsion and thus, the disturbance situations matter little. Musgraves development hypothesis musgrave 1969 suggested that the growth of public expenditure is related to the pattern of economic growth and development societies. The keynesian view states that public expenditure is an exogenous factor that influences economic growth and can be used as a policy instrument. A survey of the theory of public expenditure criteria core. Musgrave in his book, the theory of public finance. Which level of government should be responsible for specific function and activities belonging to the public sector central, regional and local. Munich personal repec archive government spending and economic growth.
Therefore, i explicitly assume two categories of goods. Musgrave tries to find a solution to this problem through his multiple theory of public household. Pdf the optimal level of public expenditure researchgate. Each of them agreed with the necessity of public expenditure to push a country in to the path of development. This theory concerns itself with those expenditures for which conventional value theory breaks down completely. The aim of this paper is to point out an importance of public expenditure management and its using in the area of public finance and budget. Today, the scope of public expenditure increased largely since all the economies of the world are focusing on development, growth, welfare, safety etc. Public sector, governance, and accountability series includes bibliographical references and index. The activities of the government and the economic policy or the principles that make for an efficient conduct of public budget are the basic concerns of what is called public finance or what musgrave prefers to call. Wagners hypothesis of public expenditure growth a re. The article surveys the literature on public expenditure growth, and makes some suggestions for possible future developments.
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