Question

What is the basis of classifying government expenditure into revenue expenditure and capital expenditure?

Answer 1

Aspect	Revenue Expenditure	Capital Expenditure
Nature	Recurring or operational in nature.	Non-recurring or investment in nature.
Purpose	For the day-to-day functioning of the government.	For the creation of assets or reduction of liabilities.
Benefits	Short-term benefits	Long-term benefits
Impact on Assets	Does not lead to the creation of assets.	Leads to the creation of assets (like roads, buildings, and machinery).
Impact on Liabilities	Does not result in a reduction of liabilities.	May lead to reduction of liabilities (like repayment of loans).
Examples	Salaries, pensions, interest payments, subsidies, maintenance.	Expenditure on infrastructure, purchase of equipment, and loans to public enterprises.
Accounting Treatment	Shown in the revenue account of the government budget.	Shown in the capital account of the government budget.
Effect on Economic Capacity	Does not directly increase productive capacity.	Increases productive capacity of the economy.
Impact on Fiscal Deficit	Higher revenue expenditure increases fiscal deficit.	High capital expenditure is considered productive and may not be a cause of concern for fiscal deficit.