Public Expenditure

1. Meaning of Public Expenditure

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.[i]. Public expenditure is simply the expenditure incurred by the Government
to satisfy the common wants (such as education, health care and defense) which the people are
unable to satisfy efficiently for themselves.

In the 17th and the 18th centuries, public expenditure was considered as wastage of money.
Thinkers believed government should stay with their traditional functions of spending on defense
and maintaining law and order[i].

2. Nature and Kinds of Public Expenditure

Nature of Public Expenditure

As per the needs and requirements of the country, the nature of public expenditure differs from
country to country. In developing country like Bangladesh, government has a unique role to play
with a vision of socio-economic makeover and attainment of higher rate of growth with social
justice. Public expenditure in developed countries is basically undertaken to check the
fluctuation in effective demand. In developing countries, public expenditure has the objective of
socio-economic transformation and also positioning a leading big emerging economy in the
global setting in a developed country status. Public expenditure has multiplier effect on level of
output and employment. As the public expenditure is made by the government for public
welfare, it also raises the real income and quality of life. It has potential to raise the standard of
living at the same time it also has the tendency to push up the price by injecting the purchasing
power as the cost of living also increases [ii]. In a nutshell, it can be said that, the nature of
public expenditure solely depends on the status of a country.
Classification of Public Expenditure

Different economists have classified Public Expenditure into different forms. Prof. Adam Smith
has classified public expenditure on the basis of functions performed by the government. They
are:

i. Defense Expenditure
ii. Commercial Expenditure and
iii. Development Expenditure

Prof. Dalton’s classification:

i. Grants: When the government transfers its resource without any quid pro quo, it is
grant. Expenditure incurred to provide services is grant.
ii. Purchase Price: When the government transfers revenue to individuals or community
in return for specific services, it is called purchase price.

Prof. Roscher classified public expenditure into three groups:

i. Necessary Expenditure: Necessary expenditure is that which the state has to incur and
which cannot be postponed to a future date. Best example is expenditure on
administration.
ii. Useful Expenditure: Useful expenditure is that which is desired, but can be
postponed.

i. Superfluous Expenditure: It is that, which the state may or may not occur. It is
otherwise called ornamental expenditure.

Economic Classification:

ii. Revenue Expenditure: This means expenditure on civil administration, defense and
welfare schemes etc.
iii. Capital Expenditure: This is incurred once and all. It is non-recurring expenditure.
Expenditure on multipurpose projects, big factories like steel and cement, money
spent on machinery, building and land are all capital expenditure.
iv. Development Expenditure: This is made on irrigational development, industrial
development, education and health etc.
v. Non-Development Expenditure: This is the money spent on civil administration,
police force, defense force, judiciary etc. [iii].