CAUSES OF INCREASE IN PUBLIC EXPENDITURE//B.A.//M.A./11TH CLASS//12TH CLASS
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Some of the main causes of public expenditure growth are:
1. Income Elasticity and Increase in Per Capita Income:
According to Musgrave, a rising share of public expenditure in national income is associated with a rise in per capita income.
2. Welfare State Ideology and Wagner’s Law:
The modern State is a welfare state. It aims at promoting the economic, political, and social well-being of its citizens. It makes every effort to improve the living standard of the common people. For this purpose, it has to undertake may functions and services never visualised before.
3. Effects of War and the Need for Defence:
The defence expenditure is thus continuously rising. It contains expenditure on war materials, maintenance and growth of armed forces, naval and air wings, expenses on the development of military art and practice, pensions to retired war personnel, interests on war debt, cost of rehabilitation, etc.
Peacock and Wiseman have referred to the ‘displacement effect’ in the post-war period when higher taxes and higher revenue collection drive of the war period are continued by the government, finding them easy and attractive. The displacement effect may further be supplemented by a ‘scale hypothesis’, i.e., adoption of new social welfare schemes by the government on a permanent basis.
4. Resource Mobilisation and Ability to Finance:
When the government innovates more and more methods of taxation and resource mobilisation, its ability to finance public expenditure increases and the size of public expenditure grows. Public sector outlays could be increased by more taxation yields, public debt, foreign aid and deficit financing.
5. Inflation:
With the rising prices, the government has to keep on increasing public expenditure to carry out its functions and maintain the supply of public goods intact. During inflation, the government has to pay additional DA to its employees which obviously call for an extra burden on public expenditure.
6. The Role of Democracy and Socialism:
The recent growth of democracy and socialism everywhere in the world has caused public expenditure to increase very much. A democratic structure of government is inevitably more expensive than a totalitarian government. In India, democracy has certainly become a costly affair. Expenditure on elections and bye-elections is increasing.
7. The Urbanisation Effect:
The spread of urbanisation is an important factor leading to the relative growth of public expenditure in modern times. With the growth of urban areas, there has been an increasing tendency of expenditure on civil administration.
8. The Rural Development Effect:
In an underdeveloped country, the government has also to spend more and more for rural development. It has to undertake schemes like community development projects and other social measures.
9. The Population Effect:
A high growth of population naturally calls for increase in the expenses as all State functions are to be performed more extensively. Rising population also poses various problems in poor countries.
10. The Growth of Transport and Communication:With the expansion of trade and commerce, the State has to provide and maintain a quick and efficient transport system. Transport being a public utility, the State has to provide it cheaply also. Hence, railway and passenger transport is nationalised.
Government has, therefore, to run transport services even at a loss. This obviously calls for a high expenditure for maintenance and expansion. Further, the government in a poor country has to spend a lot on constructing new railway lines, new roads, national highways, bridges and even canals to connect the different areas with a smooth transport system as a precondition of growth.
11. The Planning Effect:
In a less developed economy, the government adopts economic planning for the development of the country. In a planned economy, thus, when the public sector is expanding its role, public expenditure obviously shows an increasing trend.
In India, for instance, the public sector outlay during the First Five Year Plan was just Rs. 1,960 crores, which is now estimated at Rs. 2, 47,865 crores during the Eighth Plan period (1992-97).
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