Register now or log in to join your professional community.
It has been clear that increase in government expenditure in many GCC countries over recent years, where the public wage bill has hit a record high. This has a negative effect on the growth of the economy because it leads to the freezing of recruitment of citizens to government jobs, low investment and stagnation of the economy due to slow or no growth rate. However, Sustainable government expenditure is a good recipe for the economy to grow and improve, through employment, development of infrastructure, more investment and savings, while unmanageable government expenditure stagnate the growth of the economy. When the governments unable to reduce its expenditure even after donor countries imposed tied conditions to the point of freezing foreign aid. This has increased internal borrowing further worsening the existing situation. There has been a major concern from policy makers that this is causing inflation to shoot to souring level and moreover investment in the economy has gone down due to low savings and higher cost of borrowing.
According to Borcherding and Lee (2004), the analysis of government spending growth is generally classified into two categories, namely, a-institutional and institutional approaches.
1- The a-institutional approach argues that the growth of the level of government expenditure depends on the changing social and market conditions. Under this approach, the median voter is assumed to play a significant role in determining the level of spending by the government and hence the demand for public services is considered to be driven by factors such as the voter’s preferences, income, tax-price and relative price of private goods and services. Population also falls under the a-institutional approach as one of the demographic factors affecting the level of public spending.
2-The institutional approach, on the other hand, emphasizes the role of rent-seeking activities, structural changes and major economic or political shocks on the growth of government spending. For example, the institutional theory is related to the concepts of Wagner’s (1893) Law and the displacement effect of Peacock and Wiseman (1961).
Wagner (1890) in his Law of Increasing State Activities explained that there are inherent tendencies for the activities of different tiers of a government (such as federal, state and municipal government arms) to continually rise, over time, both intensively and extensively. These increases in state activities necessitate increases in government expenditure .Wagner proposed three reasons why the share of government spending would increase in importance as an economy grows. First, as industrialization progresses public sector activity will substitute for private sector activity because state's administrative and protective functions would increase in importance during the industrialization process. Secondly, State’s role in maintaining law and order as well as its role in activities related to economic regulation is likely to become more pronounced due to the increasing complexity of economic life and urbanization, which occur during industrialization.
Furthermore, public spending on cultural and welfare services (including education and income redistribution) would also increase as a country industrializes due to the high income elasticity of demand for these services - an implicit assumption in Wagner's work. This means that as per capita income increases demand for the services mentioned above, which are usually provided by the government increases rapidly, raising the share of public sector expenditure in GDP.
Wiseman & Peacock (1961) argue that spending increases when governments spend to meet demands made by the population regarding various services. Further during wars, tax rates are increased by the government to generate more funds to meet the increase in defense expenditure; such growth in revenue therefore gives rise to government expenditure (Peacock & Wiseman, 1961).In other words government expenditure is driven by strong economic crises which are able to change public spending.
There are many points which Leads to the increase of public expenditure on state revenues, some resons are as follows....
1- Population growth
2- Defense Expenditure
3- Foreign Aid
4- Inflation
5- Wars and social crises
6- Provision of public and utility services
7- Raising the standard of living of the people
8 -Higher price level compels government to spend increased amount on purchase of goods and services
Thanks for the invitation, Answer is same as mentioned below.
That's a great question to answer. thank you
It has been clear that increase in government expenditure in many GCC countries over recent years, where the public wage bill has hit a record high. This has a negative effect on the growth of the economy because it leads to the freezing of recruitment of citizens to government jobs, low investment and stagnation of the economy due to slow or no growth rate. However, Sustainable government expenditure is a good recipe for the economy to grow and improve, through employment, development of infrastructure, more investment and savings, while unmanageable government expenditure stagnate the growth of the economy. When the governments unable to reduce its expenditure even after donor countries imposed tied conditions to the point of freezing foreign aid. This has increased internal borrowing further worsening the existing situation. There has been a major concern from policy makers that this is causing inflation to shoot to souring level and moreover investment in the economy has gone down due to low savings and higher cost of borrowing.
According to Borcherding and Lee (2004), the analysis of government spending growth is generally classified into two categories, namely, a-institutional and institutional approaches.
1- The a-institutional approach argues that the growth of the level of government expenditure depends on the changing social and market conditions. Under this approach, the median voter is assumed to play a significant role in determining the level of spending by the government and hence the demand for public services is considered to be driven by factors such as the voter’s preferences, income, tax-price and relative price of private goods and services. Population also falls under the a-institutional approach as one of the demographic factors affecting the level of public spending.
2-The institutional approach, on the other hand, emphasizes the role of rent-seeking activities, structural changes and major economic or political shocks on the growth of government spending. For example, the institutional theory is related to the concepts of Wagner’s (1893) Law and the displacement effect of Peacock and Wiseman (1961).
Wagner (1890) in his Law of Increasing State Activities explained that there are inherent tendencies for the activities of different tiers of a government (such as federal, state and municipal government arms) to continually rise, over time, both intensively and extensively. These increases in state activities necessitate increases in government expenditure .Wagner proposed three reasons why the share of government spending would increase in importance as an economy grows. First, as industrialization progresses public sector activity will substitute for private sector activity because state's administrative and protective functions would increase in importance during the industrialization process. Secondly, State’s role in maintaining law and order as well as its role in activities related to economic regulation is likely to become more pronounced due to the increasing complexity of economic life and urbanization, which occur during industrialization.
Furthermore, public spending on cultural and welfare services (including education and income redistribution) would also increase as a country industrializes due to the high income elasticity of demand for these services - an implicit assumption in Wagner's work. This means that as per capita income increases demand for the services mentioned above, which are usually provided by the government increases rapidly, raising the share of public sector expenditure in GDP.
Wiseman & Peacock (1961) argue that spending increases when governments spend to meet demands made by the population regarding various services. Further during wars, tax rates are increased by the government to generate more funds to meet the increase in defense expenditure; such growth in revenue therefore gives rise to government expenditure (Peacock & Wiseman, 1961).In other words government expenditure is driven by strong economic crises which are able to change public spending.
Income Elasticity and Increase in Per Capita Income, Welfare State Ideology and Wagner’s Law, Effects of War and the Need for Defense, Inflation, Resource Mobilization and Ability to Finance and Role of Democracy and Socialism etc.
What increases the public expenditures is the fixed charges coverage such as Education, technology, health and facilities.
thank you Sir Georgei Assi for your invitation.
I would like to agree with the answers given by our respected colleagues.
There are many factors that could lead to this. There can be two scenarios, 1) Where the government isn't able to control it's expenses by taking adequate measures. 2) Where government wants to provide more facilities for the benefit of it's people.
There are several factors that have led to enormous increase in public expenditure.
1-Population Growth
2-Increase in National Income
3-Defensive Expenditure
4-Increase in Public Revenue
5-Government Subsidies
6-Expansion of Administrative Machinery
7-Development Projects
There are several factors that have led to enormous increase in public expenditure. It increases with the increase in population, more of investment isrequired to be done by government on law and order, education, infrastructure, and etc
1. Defense Expenditure
2. Government Subsidies on food, fertilizers, exports, education etc.
3. administrative machinery (police, tax and sector development projects such as irrigation, iron, steel power, telecommunication & etc.) in the country with the rapid growth of population and also economic development
4. The development projects require lot of capital and revenue expenditure.Industrialization setting up key and basic industries requires a huge capital and profit may arise only in the long run
5. Reduction in interest rate and inflation.
6. Rebate / reduction in state tax on individual / corporates.
This will lead to:
- Deficit in the public budget, high rates of inflation.
- Growing reliance on the expansion of the issuance of money.
- Disruption of living standards.
- Disorder Foreign Relations states.
