Ahmed Khalifa 2023

Theoretical Aspect Of Public Expenditure

 Public Expenditure Meaning and nature:

Public expenditure is spending made by the of a country for the
satisfaction of public goods such as pension ‫معاش‬, provision, and
infrastructure ‫بنية تحتية‬

*** The nature of public expenditure differs from country to country as per
the needs and requirements of the country

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 spending in developed countries is basically under taken to check the

fluctuation in effective demand.

In developing countries public expenditure has the objective of socio-

economic transformation ‫ التحول االجتماعً واالقتصادي‬and positioning a leading big
emerging economy ‫ االقتصادات الناشئة الكبٌرة‬in 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 goods, it
also raises the real income and quality of life, but on one hand it has
potential to raise the standard of living at the same time it also has the
tendency to push up the price

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 Historical views of public expenditure 

- Historically there are two divergent views ‫اثنٌن من وجهات النظر المختلفة‬, regarding the
scope of public expenditure. That is the traditional and the modern

(I) Traditional view (Classical View)

 The classical school were opposed to "increasing public expenditure"
for two main reasons.
1- The belief of Adam Smith and his followers that the functions of the state
should be restricted to justice, police and arms

2- The belief that government expenditure is wasteful and that money can be
better utilized by private persons (sectors) than by government

 The traditional view also say's "the very best of all plan of finance is to
spend little".
Classical economists never fully appreciated the importance and
advantages of public expenditure and they always stood for minimum
taxation and minimum expenditure.

Ricardo stated "if you want a peaceful government you must reduce the
budget"

(II) The modern view (Keynes View)

 After the great depression of 1930's that increased attention was paid to
the study of public expenditure.
Prof. Musgrave advocated ‫ دعا‬and brought out significance ‫ تبرز أهمٌة‬public
expenditure.
Today the study of public finance is not complete without a proper
discussion on public expenditure

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 Public expenditure has acquired great importance in modern times for

two basic reasons
1- The economic activities of the state have increased in many ways

2- It has now been realized that the nature and volume of public expenditure
can have important effects on the economic life of the country on
production, distribution and the general level of economic activity

 Classification of public expenditures

 Classification of public expenditure refers to the systematic arrangement
of different items on which the government incurs expenditure.

1- Benefit criteria ‫معايير الفائدة‬

A- Expenditure which confers common benefit on all Citizens (OR) Taxpayers
‫اإلنفاق الذي ٌمنح فائدة مشتركة الً جمٌع المواطنٌن أو دافعً الضرائب‬
 Example: defence, universal education given to the residents free of
charge …………………etc.

B- Expenditure confers special benefit on some persons or on certain classes

‫اإلنفاق ٌمنح منفعة خاصة الً بعض األشخاص أو على فئات معٌنة‬
 Example: expenditure on poor people. Granting subsidy certain
industries

 An obvious objection ‫ اعتراض واضح‬to this classification is that it is very

difficult to draw distinction ‫ تمٌز‬between special benefit and common benefit as
satisfaction of special benefit may lead to generation of common benefit ‫قد ٌؤدي‬
‫الرضا عن المنفعة الخاصة إلى تولٌد فائدة مشتركة‬..

 Example: expenditure on poor relief ‫أغاثة الفقراء‬, which is specifically for

the benefit of those immediately concerned, result in common benefit such
as prevention of crime, satisfaction of general sense of justice etc.

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2- Revenue criteria ‫معايير االيرادات‬

- According to this classification, the public expenditure classified according to
the amount of revenue the state realizes in return as follow:

A- Expenditure without any direct return of revenue

 Example: poor relief, transfer public expenditure.

B- Expenditure without any direct return, but there are indirect beneficial.
 Example free education; better educated persons are more productive
people.

C- Expenditure with return or even profit.

 Example: investment in public undertakings ‫االستثمار فً المشارٌع العامة‬,
railways etc.

3- Functional criteria ‫معايير وظيفية‬

- Functional classification is based on the various functions that performed by
public authorities. According to main functions of government, the public
expenditure can as follows as:

a) Protective functions: This includes expenditure on defence, police,

judiciary, social disease, prisons etc.

b) Developmental functions: This category includes expenditure that helps to

develop the resources of the country such as expenditure on education,
provision of public recreation, public health, infrastructure investment
(Railway)

c) Re-current functions: This category includes current expenditure

(consumption expenditure) on: wages, salaries, consumables, interest
payments, subsides and transfers.

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4- Priority criteria ‫معايير األولوية‬

- According to this classification the public expenditure classified to:

A- Primary expenditure: these types of expenditures are essential for the

existence of the state so the governments are obliged to undertake it
 Example: expenditure on defence, maintenance of law and order ‫الحفاظ‬
‫على القانون والنظام‬, civil administration ‫اإلدارة المدنٌة‬, payment of debt ………..etc.

A- Secondary expenditure: it includes expenditure on education, public health,

poor relief, unemployment relief and other expenses on social security.

 Question:
Complete the table below with the following various classification of each type of
government spending.

Classification of public Revenue Functional Priority

expenditure criteria criteria criteria
Government spending types
Building new roads
Free education
Defence
Industry and agriculture subsidy
Debt interest
Recreation, culture and religion
Unemployment grant

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Answer
Classification of public Revenue criteria Functional Priority
expenditure criteria criteria

Building new roads ExP. With Return Development Secondary

Free education Exp with indirect benefit Development Secondary
Building of new hospital Exp with indirect benefit Development Secondary
Defence Exp without any return Protective Primary
Industry and agriculture subsidy Exp without any return Recurrent Secondary
Debt interest Exp without any return Recurrent Primary
Recreation, culture and religion Exp with indirect benefit Development Secondary
Unemployment grant Exp without any return Recurrent Secondary

Wages & salaries' in public sector Exp with return Recurrent Secondary

Diagnosis & a serology for treatment Exp without any return Protective Secondary
the hepatitis C

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