Effects of Public Expenditure on production, distribution and economic stability.

Effects of Public Expenditure on production, distribution and economic stability

Effects of Public Expenditure on Production, distribution & economic stability

Public expenditure has a great bearing on economic development and social welfare of a country.Following observations may be noted in this regard.

  • Effect of Public Expenditure on Production

According to Dr.Dalton,public expenditure tends to affect the level of production in the following manner:

1.Capacity to work and save

As a result of public expenditure,capacity to work and save tends to rise.Government expenditure provides various kinds of social and economic facilities stimulating the capacity to work of the people.Increased capacity implies increased efficiency and greater employment. Level of income and saving tends to rise facilitating greater investment and adding to the pace of growth.

2. Desire to Work and save

Expenditure incurred by the government promotes the will to work and save.As a result,their income and standard of living tent to rise.

3. Productive Utilization of Resources

Public expenditure restores a balance in the economy by focusing on those areas of production which generate maximum linkages effect.Public expenditure acts as a pump-priming,attracting idle resources to their productive utilization.Accordingly,production level tends to raise the resources from unproductive activities to productive ones.This results in increase in production.

  • Effect of Public Expenditure on Distribution

Public expenditure affects distribution in the following possible ways:

1. Regional Inequality

This is how public expenditure can promote equality across different regions of a country :

i. The government expenditure should focus on development of backward areas,increasing the level of production and income of the people of those areas.Their standard of living will increase to catch up with the living standards in developed regions of the country.

ii. Public expenditure should include financial help to the small-scale and cottage industries.These industries have the merit of easy-diversification across different parts of the country.Accordingly regional inequality is expected to improve.

2. Distribution of the Dividends of Industrial Development

As a result of public expenditure,public sector industries in the country.The workers employed in these industries are paid higher wages.They get some facilities also,better than others.Following the public sector industries,private sector industries also provide higher wages and other facilities to the workers.Increase in the workers wages will lead to the reduction in economic inequality.

3. Benefit to the Weaker Section

If the government makes public expenditure on social services like education,medical care,unemployment allowance,labour welfare etc. after collecting resources by way of taxes from the rich class,it will result in the increase in real income of the poor people,thus tilting the distribution further in their favour.

4. Increase in the Ability to work of the Poor

Distribution of income can also be influences by increasing the ability to work of the poor with the help of public expenditure.This objective can be achieved in two ways:

i. Direct Help : The government can provide direct help to the poor people in the form of cash,commodities and service.

ii. Indirect Help: The government can provide loans to the poor at a low rate of interest.It can provide them food at fair price.It can provide more social services to them.As a result of it,their efficiency will be increased.With rise in their income level their standard of living will improve.

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