Edexcel A Level Economics A:复习笔记4.5.1 Public Expenditure

• Public expenditure (government spending) represents a significant portion of the aggregate demand (AD) in many economies. The expenditure can be broken down into three categories

1. Current Expenditures: These include the daily payments required to run the government & public sector. E.g. The wages & salaries of public employees such as teachers, police, members of parliament, military personnel, judges, dentists etc. It also includes payments for goods/services such as medicines for the NHS
2. Capital Expenditures: These are investments in infrastructure & capital equipment. E.g. High speed rail projects; new hospitals & schools; new aircraft carriers
3. Transfer payments: Payments made by the government for which no goods/services are exchanged. E.g. Unemployment benefits, disability payments, subsidies to producers & consumers etc. This type of government spending does not contribute to GDP as income is only transferred from one group of people to another

Factors Affecting The Size & Composition of Public Expenditure

The Significance of the Level of Public Expenditure as a Proportion of GDP

• The size of government spending as a proportion of GDP varies from country to country & can have numerous impacts on an economy
  • In 2020, it accounted for 51.44% of Sweden's GDP, 40% of the UK's GDP, & 25.37% of Thailand's GDP
• Public expenditure has many positive benefits including
  • Improvements to the supply-side of the economy through expenditure on infrastructure, health, education etc.
  • It improves the equality of opportunity e.g. education for all children
  • It raises the standards of living for all e.g. development of parks, libraries etc
  • It reduces poverty & decreases inequality in the distribution of income
  • It increases economic growth
  • It drives innovation by providing long-term seed funding for firms & investing in applied research (some estimates say that global innovation has in the majority been created by public sector funding e.g. the mission to put a man on the moon or the need to keep a soldier safe in a particular scenario)
• Public expenditure also has the following drawbacks
  • It can have a negative impact on productivity & long-term growth as without a profit incentive the urgency of labour diminishes & resources are used more inefficiently
  • It creates opportunity for corruption which can actually decrease the standard of living
  • If the government is running a budget deficit they will need to borrow funds from the private sector. This can create a crowding out
  • It may require taxation levels to increase in order to pay for the expenditure
  • If the spending is not spread evenly throughout different regions of the country, it can create inequality of opportunity e.g. the North/South divide in the UK