This classification provides a more detailed breakdown of revenue and capital expenditures of the government. With the development of the economy, new functions and activities are undertaken by the Government and old functions are performed more thoroughly. In contrast to general equilibrium framework, we are adopting here partial equilibrium framework. In other words, the government should avoid deficit budget, But the modern economists, especially Keynes, do not regard surplus budgeting as a virtue, rather deficit budgeting is more useful in raising the levels of income and employment in the underdeveloped countries. Meaning and Scope of Public Expenditure: Till the middle of the nineteenth century, the writers of Public Finance gave comparatively little attention to the subject of public expenditure. Cost of supplying a good will be taken up by the people. But there is not so straight forward reaction.
Hence a completely satisfactory method is yet to emerge. Progressive expenditure can assume different forms. Primary expenditure includes all those expenditures which governments are obliged to undertake, it is mandatory on the part of the government to incur these expenditure. This means that the countries which had pushed up their tax ratios over time had not necessarily increased their saving performance and that countries with high tax ratios were not necessarily high savers. In a free capitalist society, very little provision is made for the future. The schedule D A indicates the amount of the good A will wish to demand at different levels of his tax share.
This revenue expenditure is of recurrent type which is incurred year after year. Coverage of New Functions : Secondly the activities of the state were increasing in their coverage. Classification of public expenditure refers to the systematic arrangement of different items of state expenditure, on some specified economic basis. Best example is expenditure on administration. The emerged new levels of tax tolerance make the society willing to support higher levels of public expenditure.
Not all types of public expenditure reduce inequalities in income distribution. It may be noted that at present benefits of these subsidies are enjoyed not only by the poor but all those who are relatively well off. But with the growing awareness of its responsibilities to the society, the governments started expanding its activities in the field of various welfare measures to enrich the cultural life of the society. At times of depression in an industrialised developed economy, there is idle productive capacity on the one hand and unemployed manpower on the other. Better educated persons are better tax payers and less expensive citizen than paupers and criminals. Sometimes public expenditure may result in diversion of economic resources as between localities.
Apart from augmenting total production, the Government expenditure also affect allocation of resources as between different industries and can divert resources to socially desirable channels. He divides expenditure between obligatory or necessary and optional. Revenue expenditure includes all current expenditure on administrator including defence and public commercial undertakings. Urbanisation calls for greater per capita expenditure on social and administrative services. The long run secures growth in public sector is a product of long run growth and expansion of the economy. Firstly, Government expenditure has been classified into revenue expenditure and capital expenditure. Furthermore, an integrated approach could better explain.
It is worthwhile to mention that whereas in case of transfer payments, it is the beneficiaries that decides about the use of resources, in the case of non-transferable type of expenditure, the Government itself decides about the use of real resources, especially whether they are to be used for consumption or investment purposes. The Governments followed laissez faire economic policies and their functions were only confined to defend the country from foreign aggression and to maintain law and order within their territories. The Samuelson theory of public goods has been of decisive influence for the theory of public expenditure. This is referred to as please effect or please hypothesis. But once the level of full employment is attained the increase in Government expenditure cannot raise production through raising aggregate demand.
Therefore, these days, expenditure on education, research and health are generally regarded as developmental expenditure. Against these, it may be pointed out that certain types of Government expenditure may adversely affect production. While other expenditures arose as a result of technological development and expansion of government activity into new areas. Now, this compensatory fiscal policy is being followed by all the world over, since achievement of full employment and maintenance of economic stability has become an important objective of the Government. Expenditure on Anti-Poverty Programmes: An important step for increasing incomes of the poor people is starting of several employment generating anti-poverty schemes.
Each of the theory and its idea are briefly explained below. Principle of Maximum Social Benefit: It is necessary that all public expenditure should satisfy one fundamental test, viz. It is in line with the objective of employment that in India, the Government has taken over several private sick mills and incurs a lot of expenditure on them so that workers employed in them are not rendered unemployed. . This can be kn own as the tolerab le leve l o f taxation a nd this level cann ot be high. It is not compulsory in nature. Findlay Shirras classified public expenditure into a Primary expenditure and b Secondary expenditure.