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What is primarily emphasized by the principle of maximum social advantage?
What is primarily emphasized by the principle of maximum social advantage?
- Government expenditure should exceed revenue collection.
- Government should maximize taxation without limits.
- A balance between taxation and government expenditure is essential. (correct)
- Public services should be funded solely by private investments.
Which principle focuses on ensuring judicious spending of collected revenue?
Which principle focuses on ensuring judicious spending of collected revenue?
- Principle of Maximum Aggregate Benefit
- Principle of Economy (correct)
- Principle of Elasticity
- Principle of Sanction
What does the principle of maximum aggregate benefit assert regarding public revenue and expenditure?
What does the principle of maximum aggregate benefit assert regarding public revenue and expenditure?
- Public revenue and expenditure must be balanced to yield maximum satisfaction. (correct)
- Expenditure should always be higher than revenue.
- Revenue should be maximized without consideration of public satisfaction.
- Satisfaction is derived only from minimization of public expenditure.
Which of the following is NOT one of the four key obligations of public utilities?
Which of the following is NOT one of the four key obligations of public utilities?
What characteristic should public authorities possess according to the principle of elasticity?
What characteristic should public authorities possess according to the principle of elasticity?
What is the main purpose of public expenditure?
What is the main purpose of public expenditure?
What distinguishes developmental expenditure from non-developmental expenditure?
What distinguishes developmental expenditure from non-developmental expenditure?
Which hypothesis suggests a relationship between industrialization and the growth of public expenditure?
Which hypothesis suggests a relationship between industrialization and the growth of public expenditure?
Which factor does NOT contribute to the growth of public expenditure according to Wagner's Hypothesis?
Which factor does NOT contribute to the growth of public expenditure according to Wagner's Hypothesis?
Which of the following is considered a new responsibility that governments began to assume?
Which of the following is considered a new responsibility that governments began to assume?
What impact does population growth have on public expenditure according to the content?
What impact does population growth have on public expenditure according to the content?
Which of the following statements about public goods is true?
Which of the following statements about public goods is true?
What type of public expenditure is considered non-recurring?
What type of public expenditure is considered non-recurring?
Which of the following is NOT one of Adam Smith's main duties for the sovereign?
Which of the following is NOT one of Adam Smith's main duties for the sovereign?
Which factor is NOT mentioned as a cause for the increase in public expenditure?
Which factor is NOT mentioned as a cause for the increase in public expenditure?
Which of the following is NOT a category of capital expenditure?
Which of the following is NOT a category of capital expenditure?
What is identified as a major contributor to public expenditure in the current century?
What is identified as a major contributor to public expenditure in the current century?
What is one of the roles of government highlighted by Prof. R.A. Musgrave?
What is one of the roles of government highlighted by Prof. R.A. Musgrave?
Which of the following is a type of revenue expenditure?
Which of the following is a type of revenue expenditure?
Which scenario is less likely to lead to an increase in government expenditure?
Which scenario is less likely to lead to an increase in government expenditure?
Why is the expansion of the public sector a cause for increased public expenditure?
Why is the expansion of the public sector a cause for increased public expenditure?
What is one consequence of urbanization on public spending?
What is one consequence of urbanization on public spending?
How does per capita income relate to public expenditure according to Musgrave?
How does per capita income relate to public expenditure according to Musgrave?
What does economic planning suggest about the public sector?
What does economic planning suggest about the public sector?
What is a main critique of Wagner's hypothesis on public expenditure?
What is a main critique of Wagner's hypothesis on public expenditure?
What are the effects highlighted in the Wiseman and Peacock hypothesis concerning public expenditure growth?
What are the effects highlighted in the Wiseman and Peacock hypothesis concerning public expenditure growth?
What characterizes public goods in economic theory?
What characterizes public goods in economic theory?
Which criterion is used to determine the optimal allocation between public and private goods?
Which criterion is used to determine the optimal allocation between public and private goods?
What does the concept of rivalry in public goods imply?
What does the concept of rivalry in public goods imply?
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Study Notes
Public Expenditure: Meaning and Importance
- Public expenditure includes government expenses for maintenance, preservation, and welfare of the economy.
- Major drivers for the increase in public expenditure are increased economic activities and impacts on economic life.
Adam Smith’s Duties of the Sovereign
- Protect society from violence and external invasions.
- Safeguard against injustice.
- Erect and maintain essential public works.
Adolph Wagner’s Law of Increasing State Activity
- Introduced in the late 19th century emphasizing expanding governmental roles in society.
Prof. R.A. Musgrave’s Advocacy for Public Expenditure
- Governments must perform several activities:
- Reallocation of resources.
- Redistribution of income.
- Stabilization policies.
- Commercial activities.
Importance of Public Expenditure
- Catalyzes economic development.
- Serves as a fiscal policy instrument.
- Aids in income redistribution.
- Promotes balanced regional growth.
Causes for Increased Public Expenditure
- Emergence of welfare states.
- Escalating defense expenditure.
- Growth of democratic governance.
- Rising population numbers.
- Inflation and rise in price levels.
- Expansion of the public sector.
- Development-focused expenditure.
- Public debt accumulation.
- Grants and loans to state governments.
- Poverty alleviation initiatives.
Classification of Public Expenditure
- Revenue Expenditure: Current and recurring expenses, categorized in the revenue budget.
- Capital Expenditure: Non-recurring expenses linked to capital investments and development, includes:
- Developmental outlay.
- Non-developmental outlay.
- Loans and advances.
- Debt discharge.
Developmental vs. Non-Developmental Expenditure
- Developmental Expenditure: Aims to foster economic growth.
- Non-Developmental Expenditure: Includes spending on national security, law enforcement, and debt servicing.
Theories of Growth of Public Expenditure
- Adolph Wagner’s Hypothesis: Correlation between industrial growth and public sector expansion.
- Wiseman and Peacock Hypothesis: Public expenditure grows in increments due to social disruptions like wars or economic crises.
- Pure Theory of Public Expenditure: Focus on the characteristics of public goods.
Adolph Wagner’s Hypothesis Explained
- Suggests traditional state functions have expanded due to economic development, social progress, and the need for public goods.
- War and preparation for it significantly influence public expenditure.
- Urbanization and rising population increase the scope and cost of government activities.
Criticism of Wagner’s Hypothesis
- Lacks interdisciplinary approach.
- Fails to account for short-term expenditure patterns.
- Overlooks modern influences like war.
Wiseman and Peacock Hypothesis Characteristics
- Public expenditure increases as a response to crises, suggesting spending grows in discrete steps rather than a continuous pattern.
Principles of Public Expenditure
- Maximum Social Advantage: Balance taxation and spending for optimal societal benefit.
- Maximum Aggregate Benefit: Achieve maximum satisfaction by balancing revenue and expenditure.
- Economy Principle: Ensures judicious spending of taxpayer funds.
- Sanction Principle: Unapproved spending leads to overspending dangers.
- Elasticity Principle: Expenditure should adjust flexibly based on needs.
Pricing of Public Utilities
- Public utilities provide essential services like electricity and water, significant for socio-economic development.
- Subject to regulation to fulfill societal obligations, including serving all consumers and avoiding discrimination.
Obligations for Public Goods
- Duty to serve all consumers equitably.
- Provide adequate service to meet consumer needs.
- Charge reasonable rates for services.
- Ensure no unjust discrimination in service provision.
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