Question

State with reasons whether you agree or disagree with the following statement:

Public expenditure includes only revenue expenditure.

Answer 1

I disagree with this statement.

Reason:

Public expenditure is that expenditure which is incurred by the public authority for protection of their citizens, for satisfying their collective needs and for promoting their economic and social welfare. Different economists have classified public expenditure on different bases. We shall now study some of the important classification of public expenditure.

1. Revenue Expenditure: Revenue expenditure of the government is incurred for carrying out day-to-day functions of the government departments and various services. It is incurred regularly. For example, administration costs of the government, salaries, allowances and pensions of government employees, medical and public health services etc.
2. Capital Expenditure: Capital expenditure of the government is expenditure for progress and development of the country. For example, huge investments in different development projects, loans granted to the state governments and government companies, repayment of government loans etc.
3. Developmental Expenditure: Developmental expenditure is productive in nature. The expenditure which results in generation of employment, increase in production, price stability etc. is known as developmental expenditure. For example, expenditure on health, education, industrial development, social welfare, Research and Development (R & D) etc.
4. Non-Developmental Expenditure: On the other hand, that government expenditure which does not yield any direct productive impact on the country is called nondevelopmental expenditure. For example, administration costs, war expenditure etc. These are unproductive in nature.