Public Expenditures Lecture Slides PDF

Public Expenditures Ahmet DİNÇER, PhD 18 - 25 October 2024 İKT 431 Kamu Maliyesi 1 Public Expenditures For the state to maintain its existence and fulfill its duties, it is necessary to undertake expenditures. Public expenditures are the expenses incurre...

Public Expenditures Ahmet DİNÇER, PhD 18 - 25 October 2024 İKT 431 Kamu Maliyesi 1 Public Expenditures For the state to maintain its existence and fulfill its duties, it is necessary to undertake expenditures. Public expenditures are the expenses incurred by the government to produce goods and services to meet society's needs. Government expenditures are also called public expenditures, government expenditures. These expenses can be computer purchases for civil servants as well as direct income support to support farmers. The main purpose of public expenditures is to improve income distribution, realize full employment, and provide economic development. One hundred years ago, the classics did not examine them, considering that public expenditures do not affect the economic process, but only took them as data. The classics accepts that public expenditures were only for the security services of the state. The development of government services over time and the increase in the share of public expenditures in national income revealed the importance of public expenditures and should be examined in detail. 2  Public Expenditures The increase in the duties and activities of the state caused excessive growth in public expenditures. The concept of an overgrowing state, which characterizes economic growth by controlling everything, has emerged. (Leviathan overgrown state) Thomas Hobbes argues that the state should reduce the weight in the economy. It emphasizes that the overgrown and unacceptable public sector should be minimized and controlled. Thus, the concept of a protective and limited state gained importance. The expression of public expenditures in the narrow sense is the expenditures made by the organization called ‘state’ in administrative law. In this context, the expenditures of the legislative, executive, and judicial organs are public in a narrow sense. In a broad sense, public expenditure considers the state's role in social life and economic activities and the public authority that characterizes the state. In some cases, the government's granting tax cuts and tax exemptions instead of spending is also indirectly considered a public expenditure. 3 Classical Fiscal Approach in Public Expenditures The classical school did’nt study on public spending too much, and most classics ignored it. They mainly focused on public revenues, borrowing, and budget. The Classics used this concept in only examining and classifying expenditures in their budget studies. The reason is that the share of public expenditures in national income was low at that time. The public opinion overlooked the organic relationship between public expenditures and public income. In the classics, spending should be very low and state should spend economically. When spending is low, taxes will also be low, thus reducing the scope of the state's activities. The invisible hand may regulate the public interest in the best possible way as long as there is no interference with the natural order. Neutral public finance and liberal state understanding are the basic rule for the classics. Because in this case, expenditures and taxes will not cause deviations in individuals' consumption, savings, and investment decisions. They also claim that public expenditures reduce national income and even destroy it. 4  Modern Finance Approach The modern Finance Approach pay attention public financial instruments and public expenditures to obtain other results apart from the purpose of fair distribution among citizens. The modern finance understanding sees the state as a set of entities who work, spend and consume. Keynes, the founder of modern finance, emphasized that economic equilibrium can also be achieved in underemployment. If the state does not intervene, full employment can be achieved sometimes and only by chance. The reason for the economic equilibrium to be realized in underemployment is the lack of effective demand. In other words, the total expenditures are not enough to use all of the scarce resources. Y= C+I+(G-T)+(X-M) The effective tool in this formula is government spending. Another interpretation of this equation is that within the rules and conditions of the market economy, private economy units will not be able to engage in behavior to increase the effective demand with the decisions they will take one by one. 5  Modern Finance Approach In summary, it is not possible to eliminate the insufficiency in aggregate demand through individual expenditures. While the inadequacy in total demand in developed countries is due to excess savings, the share and role of the state have necessarily increased due to the shortage of savings or the use of savings in unproductive areas in underdeveloped countries. The expenditures of the activities to be undertaken by the state to create social fixed capital are met through deficit financing when necessary. Deficit spending, pump-priming, and compensatory public spending concepts have emerged in the finance theory, based on the view that spending ultimately has an income generator effect. As a result, the view that public expenditures should be increased deliberately and voluntarily, especially in times of recession and crisis, prevailed. 6  Increase in Public Expenditures Wagner's Law Examining developed countries (England, Germany, Switzerland, and the USA), Wagner finds that public expenditures also increased while production and national income increased. Wagner conclude that there is a relationship between the needs of the state and national income. He argues that as national income increases, public expenditures will increase. There is a high correlation between them, which will be valid in every country (Law on the Increase of State Activities). It demonstrates a feature of the industrialization movement. In industrialized societies, the people want the state to provide more services and take over many services. The state's share increases more than the private sector since the private economy cannot carry out social activities. The acceleration of industrialization and the increase in real income per capita drive public sector growth and public expenditures. In this way, a more significant part of the community's needs is met more satisfactorily by the central and local administrations. 7  Increase in Public Expenditures Wagner's Law According to Wagner, the reasons for the increase in public activities are; - Since the productivity growth of labor in the public sector is slower than in the private sector, the unit cost of the public sector increases faster than that of the private sector. Thus, the state is forced to spend more on the same service. It may arise from the government entering the market and directly making production. Since advanced technology requires extensive capital and large companies, the state is involved in these businesses. For example, building a large techno park and supporting entrepreneurs- Due to the importance of state-run services such as postal and education, which require significant fixed capital investments, the state is involved in these businesses and makes the necessary expenditures and investments. The Peacock-Wiseman Approach: The Leap Thesis They studied on in England’s public finance between 1890-1950 that major national crises such as wars caused an upward jump in expenditures. There is an organic link between public expenditures and public revenues. While wars or other social incidents cause an increase in expenditures, the increase in taxes to finance these expenditures becomes bearable by the right. Otherwise, the burden of this expenditure may not be reluctantly undertaken by the citizens. 8  Grafik 1: General Government Spending to GDP Ratio (1995 vs.2020) 70 63 60 54.8 55.3 55.1 55.4 53.7 51.6 49.6 48.6 50 44.1 44.9 42.1 41.9 40.9 41 39.6 37.838.3 38.4 40 33.3 32.7 31.1 30 24.5 21 20 10 0 İrlanda G.Kore İsviçre ABD Birleşik İspanya İtalya Hollanda Fransa Almanya İsrail İsveç Krallık 1995 2020  Reasons for the fictitious increase in public spending - Decrease in the purchasing power of money (paying more for the same amount of spending due to high inflation) - Changes in budget method and technique - Change of country borders and population - State acquisition or nationalization of private enterprises. 10  Reasons for the Real Increase in Public Expenditures Economic reasons: Better service and quality expectations are also expected for public services in meeting the special needs of people with an increased income level. Thus, the state may diversify its services in terms of quality and quantity. In underdeveloped countries, the need to create social fixed capital cause an increase in public expenditures in connection with the development policy. The development and renewal of accumulated social and economic infrastructure such as water dams, highways, and natural resources leads to increase expenditures. Social Reasons: The concentration of the population in cities, increase in industrialization, and practices related to meeting the transportation needs create new problems. The state undertake new expenditures to solve these problems. (such as transportation, park picnic, sports fields, coding software training) Political Reasons: The expenditures of the political power to provide better quality and wider service leads to increase the spendings to escalate the vote. Technological Reasons: The developments in the technological field have created new needs in the social dimension and thus led the government to engage in new expenditures. Population growth: Due to the increase in the population, more expenditures require developing services such as health, education, and housing. Increase in war and defense spending: In case of war and military conflicts, the state feels compelled to allocate more resources to defense. 11  Limit of public expenditure With the increase in states' intervention in economic and social life, public expenditures have also entered an upward trend. If this trend continues, it will be possible for the national income to reach very high rates. However, public spending also has its limits in a mixed economy. In the European continent countries, where the social state understanding is at a high level, the weight of state has reached the range of 50 to 60 percent. It has reached 30 percent even in countries like the USA, where the private sector has a larger share. Clark claims that the rate (public expenditure/GDP) would not exceed 25 percent. He also argues that in countries exceeding this rate, the economic balance would deteriorate. The willingness of workers to work may decrease due to high taxes, and their tendency to save decreases due to operating costs. As a result, the limit of public expenditures may vary depending on the countries' traditions, qualifications, and economic structures. 12  Classification of Public Expenditures Public expenditures are classified according to service measures. Classification; - provides convenience in determining the mutual weights of needs, - helps in making a budget, - plays an important role in ensuring harmony in the budget-plan relationship, - helps to examine the features of the functions of the state, - forms the basis for government accounting, - provides convenience in audits, - helps to show the results of expenditures, their effects, their contribution to social product, - demonstrate the burden it imposes on society. 13 Classification of public expenditures is done in two ways as administrative classification and scientific classification. In administrative classification - Organic classification: It is the classification of expenditures according to the administrative units that make the expenditure. (central administration (education, defense, health, etc.) and local administration (water, environmental cleaning, etc.). - Functional classification: The nature and content of the service rendered is essential— education, health, security, justice, etc. Services are classified according to functions. At the same time, we can see which services the state concentrates on and allocates resources for. We can also monitor the results of resource allocation. Even if different administrative institutions perform a service with the same quality, it is considered a part of the same function since it is used to separate public expenditures. Despite such benefits, it is difficult to distinguish clearly the effects of functional expenditures. For example, the training service provided in the army is both training and defense services. In addition, thanks to the education given to individuals, paying attention to their health and reducing health problems are the unseen benefits of educational activity. 14 In functional classification; General services (general administration, defense, judiciary, and law enforcement services), economic services (agriculture, energy, natural resources, construction, transportation, etc.), and social services (education, health, social security, cultural services, religion, leisure time, housing, general research, etc.) are collected under three headings. Ordinary expenditures are administrative expenses incurred by the government to meet standard public services. (teachers' salaries, stationery purchases). Extraordinary expenditure do not recur every year and exceed the standard public service framework made by the state for investment purposes (highway construction, new information system installation). Mandatory expenditures (personnel, repair-maintenance) discretionary -optional-(public works, scholarship payments) expenditures. Efficient expenditures (port, dam, highway, etc.) inefficient expenditures (excessive luxury government buildings, uncontrolled social benefits) 15 In terms of the benefits they provide; Those who benefit all members of society (defense services, primary education, safety, general health) Although only some classes provide exceptional benefits, those that are also useful to society (care of the trees, protection, education) Those who provide measurable benefits specifically to particular individuals (notaries, land registry offices, civil registry offices) Expenditures that provide unique benefits to individuals (goods and services produced by state economic enterprises, T.C. Devlet Demiryolları (TCDD), Toprak Mahsulleri Ofisi, (TMO), Çay İşletmeleri A.Ş. (Caykur) Real Expenditures and Transfer Expenditures Real expenditures are also called effective expenditures, productive expenditures, real expenditures, income-generating expenditures and are the expenditures made by the government in purchasing factors of production. Wages, purchase of food and materials, construction expenses can be given as examples. On the other hand, transfer expenditures are expenditures that cause the purchasing power to change hands among individuals or social groups without creating a change in national income. Without using any factors of production, the state only displaces the national income and distributes the resources it provides as taxes to other people and groups. In these expenditures, no direct payment is made to the production factors, and the national income is indirectly affected if the transferee or groups pay. In other words, the purchasing power is transferred from the public sector to the other sector. Business subsidies, direct subsidies to enterprises, principal and interest payments, pensions, transfers to social and research projects are examples of transfer payment 16  Effects of Public Expenditures Effects of defense expenditures on production Defense expenditures, which are a non-productive type of consumption, prevent the use of resources in productive areas and therefore negatively affect the level of national income. However, military spending devoted to scientific research and technological development can be spurious for industry and create a significant positive externality. Effects of economic subsidies on production It is the financial support provided for the production sectors to promote or protect the state's industrial sector, services sector and agriculture sector, but without receiving an equal value in return. Subsidies given to the producer lead to increase production amount and quality by reducing costs, while subsidies given to the consumer increase demand. Effects of social expenditures on production Since primary education and health expenditures increase labor productivity, they contribute to the increase of national income in the long run. Effects on Income Distribution The monthly division of income by labor, capital, and rent that participate in production in the economy is called functional income distribution. While the state causes a decrease in income of the factors through taxes, the government expenditures cause the incomes of the factors to increase. If the state spends these resources on those with less income by taking more taxes from those with high income, thus the income distribution positively change. This situation is called income redistribution. 17  Effects of Public Expenditures Effects on Consumption Public expenditures have a consumption-increasing function. The degree of this function may vary according to the nature of the expenditure. For example, while consumption expenditures cause an increase in demand directly, transfer expenditures have indirect impact on consumption. Effects on Total Demand and Inflation If the demand created by the government's expenditures is equal to the private demand that is reduced by taxes and other payments, there is no change in the level of total expenditures. If taxes collected are bigger than expenditures made by government, total expenditures decrease. If it is smaller, total expenditures increase. Public expenditures can have an impact on demand inflation. 18  Multiplier Effect The multiplier is a coefficient that expresses the increase in national income that changes in autonomous (independent) investments will create. In this respect, the essence of the multiplier concept is that every autonomous investment causes a flow of expenditure and income. In case of underemployment in the economy, in order to ensure that the resources are used at the highest possible level, it can be thought that the state will create new jobs by executing new economic activities. Undoubtedly, this will increase public expenditures, increasing public expenditures on goods and services. Alternatively, it will create new demand for labor, which will lead to increased incomes. Consumption of a person constitute the income of others. For example, money paid for bread bought from the bakery is an expense, but this money is income for the baker. Undoubtedly, such situations will arise for various goods and services or bread purchased by the state with increased expenditures. The expenditures of those who receive income from the state will also create income for others so that the expenditure and income flow will be divided into the second, third, fourth, etc., will continue in a chain. It indicates the increase in private consumption expenditures due to public expenditures. Public expenditures have a similar effect to investment expenditures and cause a higher level of income increase than themselves. As a result, the multiplier effect is when the gradual and chain effects of the initial increase in public or private expenditures in an economy increase employment and total income. 19  Multiplier Effect K: Multipier Coefficient Y: Income MPC: Marginal Propensity to Consume MPS: Marginal Propensity to Save The multiplier is directly proportional to the marginal propensity to consume and inversely proportional to the marginal propensity to save. 20  Accelerator The accelerator, which is a very close but different concept to the multiplier, is an older concept. Growth models and the Post-Keynesian analysis used the accelerator together with the multiplier. Accelerator expresses the effect of change in aggregate demand for consumer goods on investments. Therefore, it describes the functional relationship between the rate of change in consumption and the level of investment. Contrary to the multiplier, the accelerator is related to stimulated investments. These investments are realized through stimulating consumption expenditures or demand. This stimulation effect is called "acceleration, the coefficient showing the acceleration level." There is a functional connection between the changes in the consumption level and the investment level in this context. It ya da 21  Tablo: Ekonomik Sınıflandırmaya Göre Bütçe Harcamaları Public Expenditures Based on Economic Classification Bütçe Ödeneği Yer-end Realization (Bin TL) Budget Appropriation Appropriation Yılsonu Gerçekleşme Ödeneği Bütçe Giderleri (Budget Expenditures) 1.095.461.069 1.150.063.584 1.203.737.135 Faiz Hariç Giderler Budget (Expenditures 956.521.069 1.011.122.923 1.069.774.826 Excluding Interets Payments) Personel Giderleri (Personel Expenditures) 282.488.235 206.634.428 287.784.715 Sosyal Güv.Kur. Devlet Primi Social Security 48.119.765 36.843.340 48.293.803 Premiums Mal ve Hizmet Alım Giderleri Pushase of good and 75.549.737 114.638.713 96.971.299 Services Cari Transferler Current Transfers 451.121.600 499.821.419 498.062.711 Sermaye Giderleri Investment Expenditures 56.607.207 102.307.858 93.741.919 Sermaye Transferleri Capital Transfers 6.783.820 19.967.172 15.170.591 Borç Verme Lending 27.087.162 30.909.993 29.749.788 Yedek Ödenekler (the reserve appropriation) 8.763.543 0 Faiz Giderleri (Interest Expenses) 138.940.000 138.940.661 133.962.309 Kaynak: SBB, e-bütçe  Tablo: Fonksiyonel Sınıflandırmaya Göre Bütçe Harcamaları Budget Expenditures Based on Functional Classicification Bütçe Ödeneği Yer-end (Bin TL) Realization Realizatio Budget Appropriation n / GDP Yılsonu Ödeneği Gerçekleşme Appropriation Genel Kamu Hizmetleri 327.939.086 336.484.907 328.553.20 6,5 (General Public Services) 2 Savunma Hizmetleri (Defence Services) 56.362.956 62.198.084 62.783.714 1,2 Kamu Düzeni ve Güvenlik Hizmetleri 85.400.341 77.144.336 95.515.417 1,9 (Public Safety and Security Services) Ekonomik İşler ve Hizmetler 109.186.730 158.906.053 151.267.10 3,0 (Economic Affairs and Services Sector) 8 Çevre Koruma Hizmetleri 625.935 1.128.082 1.065.694 0,02 (Environment Protection Services) İskan ve Toplum Refahı Hizmetleri (Settlement and Society Welfare 8.471.715 11.332.578 11.172.840 0,2 Services) Sağlık Hizmetleri 62.035.126 56.911.759 68.851.797 1,4 (Health Services) Dinlenme, Kültür ve Din Hizmetleri Relaxation, Culture and Religion 19.287.373 17.722.197 21.023.913 0,4 Services) Eğitim Hizmetleri 162.539.066 129.274.027 164.971.30 3,3 (Education Services) 8 Sosyal Güvenlik ve Sosyal Yardım Hizmetleri 263.612.742 298.961.561 298.532.14 2 5,9 /Social Security nd Social Aid Services) Bütçe Giderleri Toplamı 1.095.461.069 1.150.063.58 1.203.737.1 23,8 (Total Expenditures) 4 35 Kaynak: SBB, e-bütçe Grafik 2: The Share of Personel Payments ve Social Security Premimum Payments in Total Public Expenditure Grafik 3: The Share of Goods and Services Purschase in Total Public Expenditure Grafik 4: The Share of Interest Payments in Total Budget Expenditures Grafik 5: Interest Payment / GDP Ratio Grafik 6: Interest Payments / Tax Revenues Grafik 7: The Ratio of Current Transfer / Total Public Expenditures çindeki Payı Grafik 8: Public Investment Expenditure / Total Public Expenditures  Tablo: Yatırımlar Harcamalarının Dağılımı (2020) Distribution of Investment Expenditures Mamul Mal Alımları 9,2 milyar TL Purchase of Manufactured Goods Menkul Sermaye Üretim Giderleri 1,3 milyar TL Expenses on Production of Movable Capital Gayri Maddi Hak Alımları 0,8 milyar TL Purchase of İncorporeal Rights Gayrimenkul Alımları ve Kamulaştırması 3,9 milyar TL Purchase of İmmovables and Expropriation Gayrimenkul Sermaye Üretim Giderleri 70,1 milyar TL Expenses on Production of İmmovable Capital Menkul Malların Büyük Onarım Giderleri 1 milyar TL Extensive Repair Expenses of Movables Gayrimenkul Büyük Onarım Giderleri 5,7 milyar TL Extensive Repair Expenses of İmmovables Diğer Sermaye Giderleri 1,9 milyar TL Other Capital Expenses Grafik 9: The Ratio of Capital Transfer Expenditures/ Total Public Expenditures  Tablo 14: Harcama Gerçekleşmesinde İlk 10 Genel Bütçeli İdare Top Public Institutions in Realizing Expenditures (Bin TL) Bütçe Ödeneği Yer-end Realization Budget Appropriation Gerçekleşme Appropriation Yılsonu Ödeneği Hazine ve Maliye Bakanlığı 468.270.853 489.659.728 482.500.517 Aile, Çalışma ve Sosyal Hizmetler Bakanlığı 125.809.131 150.688.011 150.245.566 Milli Eğitim Bakanlığı 125.396.862 83.814.807 123.942.911 Sağlık Bakanlığı 58.875.829 52.235.652 65.196.374 Milli Savunma Bakanlığı 53.859.342 61.270.707 61.875.316 Ulaştırma ve Altyapı Bakanlığı 29.026.976 62.369.994 58.324.866 Tarım ve Orman Bakanlığı 40.302.916 44.626.119 43.660.531 Emniyet Genel Müdürlüğü 38.973.189 27.712.410 40.769.085 Jandarma Genel Komutanlığı 22.968.117 22.432.315 25.269.601 Adalet Bakanlığı 19.751.360 19.981.225 23.382.430 Kaynak: SBB, e-bütçe  Tablo: Bütçe Gider Gerçekleşmesine Göre İlk On Özel Bütçeli İdare (Top Special Budgeted Administrations in realizing expenditures) (Bin TL) Bütçe Ödeneği Yer-end Realization Appropriation Budget Appropriation Gerçekleşme Yılsonu Ödeneği Karayolları Genel Müdürlüğü 21.195.323 46.146.609 45.779.756 Devlet Su İşleri Genel Müdürlüğü 9.454.219 14.136.727 13.914.168 Türkiye Bilimsel ve Teknolojik Araştırma Kurumu 3.511.062 6.297.798 5.176.165 Orman Genel Müdürlüğü 3.484.151 4.133.333 3.902.755 Ceza İnfaz Kurumları İle Tutukevleri İş Yurtları Kurumu 994.196 4.020.568 3.269.761 Küçük ve Orta Ölçekli İşl. Gel. ve dest. İdaresi 1.804.317 1.922.832 1.904.073 başkanlığı Ankara Üniversitesi 1.147.520 1.245.503 1.182.928 Hacettepe Üniversitesi 1.148.726 1.286.312 1.152.873 İstanbul Üniversitesi 1.046.547 1.195.908 1.111.809 Ege Üniversitesi 961.561 1.105.116 1.025.713 Kaynak: SBB, e-bütçe  Tablo: 2020 Yılı Mahalli İdareler Bütçe Gerçekleşmeleri (Local Administration Budget Realizations) 2020 / 2019 (Bin TL) 2019 2020 Değişim Change Bütçe Giderleri 163.138.373 173.001.339 6,0 Personel Giderleri 23.068.505 24.504.850 6,2 Sosyal Güv.Kur. Devlet Primi Giderleri 3.675.393 3.854.208 4,9 Mal ve Hizmet Alım Giderleri 73.456.928 79.464.273 8,2 Faiz Giderleri 7.418.854 7.589.003 2,3 Cari Transferler 6.040.901 7.835.195 29,7 Sermaye Giderleri 44.962.194 44.517.789 -1,0 Sermaye Transferleri 1.759.583 2.041.947 16,0 Borç Verme 2.756.015 3.194.074 15,9 Bütçe Gelirleri 151.241.768 173.930.430 15,0 Vergi Gelirleri 15.715.805 18.299.223 16,4 Teşebbüs ve Mülkiyet Gelirleri 30.104.557 31.515.860 4,7 Alınan Bağış ve Yardımlar ile Özel Gelirler 9.580.781 9.871.531 3,0 Diğer Gelirler 85.859.731 104.461.246 21,7 Sermaye Gelirleri 8.803.267 8.887.055 1,0 Alacaklardan Tahsilatlar 1.177.627 895.515 -24,0 Bütçe Dengesi -11.896.605 929.091 Kaynak: muhasebat.hmb.gov.tr