Theories on

Government
Spending
Government spending refers to money
spent by the public sector on the
acquisition of goods and provision of
services such as education,
healthcare, social protection, and
defense.
 Sources of Government Spending
1. Tax collections by the government
Direct Tax- is a tax that a person or organization pays directly to the
entity that imposed it.
Indirect taxes- taxes are basically taxes that can be passed on to
another entity or individual.

2. Government borrowing
Borrowing money from foreigners- money borrowed by a
government, corporation or private household from another country’s
government or private lenders
 Purposes of Government Spending

 To supply goods and services that are not supplied by the

private sector.
 To achieve improvements in the supply-side of the macro-
economy
 To provide subsidies to industries that may need financial
support for either their operation or expansion.
 To help redistribute income and promote social welfare.
 Fiscal policy
It refers to the use of government spending and tax policies to
influence economic conditions.

There are two types of fiscal policy, discretionary and automatic.

1. Discretionary policy refers to policies that are implemented through

one-off policy changes.
2. Automatic stabilizations are changes in government spending and taxation
that do not need approval by Congress or the President
 Types of Spending
1. Current spending
They are for the short term and include expenditure on wages
and raw materials.

2. Capital spending
They are for the long term and do not need to be renewed each
year.
 These historical
budget principles
1.Publicity
are substantially
2. Clarity
as follows:
3. Comprehensiveness
4. Budget Unity
 These historical
budget principles 5. Detailed Specification
are substantially as 6. Prior Authorization
follows: 7. Periodicity
8. Accuracy
Thanks for Listening!
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