Effect of public expenditure on production the roles of private and the public sectors are complementary. The impact of government expenditure on agriculture and agricultural output in nigeria. Public expenditure has a great bearing on economic development and social welfare of a country. Public expenditure denotes the support of the authority towards its economy. The notion of public expenditure productivity is predicated on the interpretation of public sector activities as production processes. It has been revealed that the impact of government expenditure on economic growth can vary. Pdf is public expenditure productive lipeng hu academia. Theory of public debt and current reflections intechopen.
Firstly, it includes political rules into traditional routine rules. The government by taxing the rich people at progressive rates reduces their high incomes. Capacity to work and save as a result of public expenditure,capacity to work and save tends to rise. First, by indicating the degree to which public expenditures are productive, we are in a better po sition to judge the extent to which public expenditure policies. Doc impact of public expenditure on economic growth oga. This means that there is a long run relationship between these variables and public expenditure. Abstract this study examined the relationship between public expenditure and economic growth in nigeria. Effects of public expenditure on economy production. Taking both production and consumption repercussions into account, it is concluded that in the year 1965 public expenditure generated 26 percent of domestic incomes and 18 percent of imports.
State expenditure, taxation, and debt figure 5 presents state and local expenditure relative to gdp for the period 19302009. Growth effects of public expenditure on the state and local level. Ram 1986 marked a rigorous attempt to incorporate a theoretical basis for tracing the impacts of government expenditure on growth through the use of production. Public expenditure and growth santiago herrera1 1 lead economist in the development economics vicepresidency dec, the world bank. We extend the standard new keynesian model to allow for the presence of ruleofthumb non. Contribution of public expenditure to economic growth. In our study, the peruvian dgcem is an economywide model that describes the. The impacts of public investment in and for agriculture. A complete list as well as pdf files are available at. Research paper the effects of public expenditure on. Economic development also requires development of economic infrastructures. This public expenditure affects the level of income and employment in the country.
Effects of public expenditure on distribution economics discussion. Government expenditure provides various kinds of social and economic facilities stimulating the capacity to work of the people. Effects of public expenditure in an economy hubpages. Public expenditure provides various kinds of social and economic facilities s timulating the capacity to work of the people. Subsequently, the postwar economic reconstruction and public welfare programmes grasp many economists interest on the study of public expenditure. This paper is a product of the human development global practice. Therefore, the effect of public expenditures on economic growth may be a. This study examines the effects of public expenditure on production activity and private consumption activity. Public expenditure restores a balance in the economy by focusing on those areas of production which generate maximum linkages effect. Effects of public expenditure on production, incomes and. Ram 20,21 derives the empirical model from a production function that explicitly includes both private and public sectors. Increased capacity implies increased efficiency and greater employment. A developing country like india must undertake various projects, like roadbridgedam construction, power plants, transport and communications, etc. Accordingly, production level tends to raise the resources from.
Cumulated investments increase the capital stock and gives rise to increased production in the future. Public expenditure has the expansionary effect on the growth of national income, employment opportunities, etc. In general, government borrowing results in enhancing the productive capacity of the economy. Since public debt can be seen as an alternative instrument for financing government expenditure without the need to raise existing taxes which may create various sorts of growthreducing distortions, when allocated to productive purposes debt may exhibit positive longrun effects on the growth rate of the economy through its impact on the. The impact of government expenditure on agriculture and. The effect of public expenditure on the economic growth. The effect of public expenditure on economic growth business. The public sector employs human and other resources and accumulates capital stock to produce public goods, such as economic stabilization, judicial services, national defense, protection of the poor, and. According to dalton the level of production and employment in any country depends upon three factors namely. However, if the government bonds are subscribed by the public and financial institutions, out of funds meant for investment, then automatically investment expenditure will be curtailed. Nov 19, 2014 public finance adm652 budget public expenditure reasons p.
Effects of public expenditure on production and distribution. Expenses incurred by the public authoritiescentral, state and local self governmentsare called public expenditure. To explain the components of budget to discuss the various reasons for the brisk expansion of public expenditure to identify the mechanism to control public expenditure to understand the application of cba 4. We have discussed abovethe effects of public expenditure on production and distribution. Public expenditure, if properly allocated and efficiently used, can have a wholesome effect on the economy. Saunders 22 tests the effect of government expenditure on the economy by regressing the percentage. Accordingly,production level tends to raise the resources from. On the whole, public expenditure exerts a wholesome influence on production. Investments also have a direct positive effect on gdp from.
The magnitude of public expenditure as a share of gdp. Socially desirable public expenditure increases communitys productive capacity. Doc impact of public expenditure on economic growth. In fact, the effect of an increase in the latter on the growth rate is ambiguous. Factors related to governance, labor market conditions, and the type of education aid seem to matter for efficiency. Effects of public expenditure on economic growth in nigeria. Effects of public expenditure on production, distribution. Review of theories on government expenditure economics essay. It can also reduce inequalities in income distribution, if properly designed. The study employed time series data in its analysis. Thus in conclusion it can be said an increase in government expenditure stimulates economic growth in the economy by providing a higher level of income to the private households. Effects of public expenditure on production, economic.
Public and private finance principles of maximum social advantage public goods, private goods, mixed goods and merit goods c oncepts only public finance is a field of economics concerned with how a government raises money, how that money is spent and the effects of these activities on the economy and society. Little literature on public expenditure was present until the postera 192930 great depression where economies underwent rising public expenditure. The distributional effects of public expenditure request pdf. Mayo 1996 public finance studies objectively the phenomenon of state finance without prior preferences and without wishing to provide duties for political action. The scope of the study will be limited to the impact of public expenditure on the. We have also noticed that in modern times the sphere of state activity has very much widened. Infrastructure on economic growth and income distribution in peru. The impact of government expenditure on gdp, employment and.
Accordingly,production level tends to raise the resources from unproductive activities to productive ones. The last set of simulations presented in the following pages, takes account of the impact of public expenditure, whose aim, as stated in chapter 6, is the production of infrastructure,1 on the performance of the economy, and especially on its growth. Impact of government expenditures on private consumption. Impact of increasing government spending economics help. The study examined the effects of government spending on the agricultural sector in nigeria. The purpose of this article is to study repercussions of public expenditure on output, incomes and employment, i. Assessing the efficiency and effectiveness of public spending requires the measurement of the inputs entering into the production of public sector activities. It is part of a larger effort by the world bank to. Public expenditure can influence these factors either favourably or unfavourably.
A dynamic computable general equilibrium model dcgem is the main analysis tool used to assess the impact of shifts on public expenditures on growth, poverty, and income distribution. It is also necessary to see that public expenditure exercises a healthy influence both on production and distribution of wealth in the community. In appendix a, we define key public finance terms that emerge in analyses of the. The public expenditure management presents new approaches for these former problems mentioned schick, 1999, p. Pdf the impact of government expenditure on nigeria. Quality education and the efficiency of public expenditure. It should stimulate productive activity so that the volume of production in the country increases and it may be possible to raise the. Viewed in terms of the shares of different types of income generated, 72 percent of public expenditure goes to domestic income, and the remaining 28. Public expenditure ma economics karachi university. Taking both production and consumption repercussions into account, it is concluded that in the year 1965 public expenditure generated 26 percent of. The study revealed that public capital expenditure contributes positively to economic growth in nigeria as it promotes the output of oil and infrastructural sectors but it is directly deleterious to the output of manufacturing and agricultural sector. The impacts of public investment on private investment and.
Daltons conclusion on the question of the effects of public expenditure on production and employment is that whereas taxation taken alone, may check production, public expenditure, taken alone, should almost certainly increase it. Unlimited viewing of the articlechapter pdf and any associated supplements and figures. International journal of management sciences and business research, 17, 111. The study also examines the effects of public expenditure by industry and over time 1959 to 1965. Following observations may be noted in this regard.
Public expenditure acts as a pumppriming,attracting idle resources to their productive utilization. A version of this paper was presented in the g20 workshop on fiscal policy, in istanbul, turkey. Such expenditures are made for the maintenance of the governments as well as for the benefit of the society as whole. Pdf the effects of public expenditure on agricultural. The raised money is spent for the benefit of needy class of the society. Secondary data were collected from central bank of nigeria cbn statistical bulletin. Compared to the private sector, the estimation of the actual costs of public sector activities is relatively complicated. There is a vast empirical literature investigating the relationship between government size and economic growth.
Shortrun and longrun effects of public debt on economic. The impact of public expenditures in education, health, and. He reports that public investment is more productive than private investment in both studies. Public expenditure can augment productive capacity of the economy and improve productivity of its working class. As a result public expenditure on several new items has increased manifold. This can be done in monetary and nonmonetary physical terms8. The seminal paper on health production function by grossman 1972 forms the underlying framework for many theoretical as well as empirical studies on health care production.
The history of public finance is the reflection in the field of. Public expenditure can greatly help in toning down the inequalities of income and wealth distribution in the country. The public sector provides the infrastructure, transport and communications, power, education and public health programmes. In section 3, we consider a twoequation model of the local tion and private production, either forprofit, nonprofit or both. Dalton, public expenditure tends to affect the level of production in the following manner. Public expenditure can affect i the ability to work, save and invest, ii the desire to work, save and invest, and iii allocation of resources as between different uses.
Trends and issues in the analysis of public expenditures. It can able to control the level of production indirectly. The quasiexperimental research design was employed. These studies public sector labor market to examine the public employment effects of contracting out. The study also showed that population and gdp had a positive relationship with public expenditure growth while coalition government and free primary education had a negative effect on public expenditure growth in kenya. It will also analyze the impact of government expenditure in its functional dimensions in the economy namely. For this reason and to avoid confusion, only the specific effect of expenditure will be considered. Agriculture involves the cultivation of land, raising and rearing of animals for the purpose of production of food for man feed, and raw materials for industries anyawu, 1972, cited in ebomche, 2010. These studies public sector labor market to examine the public employment effects.
On the other hand, some studies show a negative relationship between public expenditure and agriculture output 912. The effect of public expenditure on the economic growth study in nigeria, 1986 2016. Abu and abdullah 2010 observe that government expenditure has continued to rise due to the huge receipts from production and sales of crude oil, and the increased demand for public goods like roads, communication, power, education and health. Arguments against the private provision of education are often based on a perceived threat to the political goals of equity and social justice. The effects of public expenditure on agricultural production output in nigeria. Pdf the effect of public expenditure on the growth and. Study of the relationship between government expenditures. Following this determination with respect to revenue, the mediumterm expenditure framework mtef is developed outlining key areas of expenditure statutory transfers, debt service and ministries, departments and agenciesmdas expenditure as well as the projected fiscal balance suleiman, 2015. Saunders 22 tests the effect of government expenditure on the economy by. Effects of public expenditure on production, economic development.
Theoretical models the focus of our study is on the impact of public expenditure and private investment on the growth of the agricultural output. This study however will aim to examine the impact of public expenditure on economic growth in nigeria by analyzing the impact of both capital and recurrent expenditures on economic growth. With increase in the human population, there in an increase in the demand for amenities provided by the government. Public expenditure meaning, classification, principles, effects. Therefore, governments cannot ignore the demands, made by people regarding various services, especially, when the revenue collection in increasing at constant rate of taxation. Public investment directly impacts aggregate demand as a government expenditure and aggregate supply as a production function capital factor. Public expenditure has a wide effect on the production aspects of an economy. Having studied the causes of large increase in public expenditure, it will be useful to explain the effects of public expenditure on the production and distribution in the economy. Public expenditure can have a very wholesome influence on the distribution of wealth in the. An examination of public expenditure, private investment and.
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