a) The abandonment of the laissez-faire doctrine. As the climate of public opinion
changed new theories began to emerge and old ones were abandoned; among the latter was the doctrine of laissez-faire. The self-correcting mechanism of an economic system that the classical economists believed in appeared to have failed. Unemployment, which to them was a theoretical impossibility, not only proved possible, but became a major international problem.
b) The advent of Keynesian economics. One book, The General Theory of Employment,
Interest and Money (1936), by John Maynard (later Lord) Keynes, had a profound and
pervasive influence on economists and on governments for many generations. His
arguments that the government not only could but should use public expenditure as a
tool of economic policy to manage a national economy so as to counteract
unemployment, found ready acceptance in a world that had not yet recovered from the
Great Depression. The Keynesian prescription was to inject money into the economic
system. If the people were not spending, then it was up to a government to do so.
This required an expansive fiscal policy, in which a government would deliberately
aim at a Budget deficit by spending more money than it raised in taxation. To cover
the difference (deficit) the government would borrow. The 'Multiplier' effect of public
expenditure would counteract unemployment. Such fiscal policy was attractive to the
c) Wars and social crises, such as severe and prolonged unemployment had resulted in
the growth of public expenditure.
d) Increase in the range of economic activities by the state. Emergence of political
philosophies, social attitudes and economic theories that advocated extension of the
activities of the states prepared the way for governments to expand public expenditure.
e) Psychological conditioning of the general public, during a period of war and social
crisis, to a greater government intervention and higher levels of expenditure and
taxation made it easier for governments in subsequent periods to retain and to expand
their activities.
f) Post-war reconstruction of countries' economies involved governments in planning,
allocation of resources and in financing some of the projects.
g) Economic development, according to some economists, has considerable impact on
the level of public expenditure. Before a developing country can industrialize, it has
to invest in transport, water and power supplies, sanitation, education and other basic
social projects to reach a 'take-off point. In this early stage of development a high
proportion of total investment will have to be made by the government, since the
projects do not offer any, or foreseeable, return to investors. Once the country has
reached a more advanced stage of economic and social development, private
investment expands alongside public investment but, because of the imperfections of
the market, government intervention grows and with it public expenditure.
h) Growth of national income is related to the level of government economic activity.
Some economists, Wagner among them, had argued that an increase in national
income results in an increase in public expenditure on economic welfare. The richer a
country the more resources, in theory, are available to the government.
i) Increased public expectation. It can, however, be argued that, although it cannot be
statistically proved, an indirect relationship exists between the growth uf national
income and public expectation of an improved standard of living, and hence public
expenditure. Governments are likely to-be under pressure to increase provision of
public goods and services so as to increase the standard of living in general and of the
poorest members of society in particular.
j) The establishment of the welfare state. This has created a base for the long term
growth of public expenditure.
k) Socialism. Socialist parties, committed by their ideology to the extension of the public sector, won general elections and formed governments after the Second World War in
a number of countries, including the UK. Implementation of the policies set out in the
election manifestos furthered the development of mixed economies and contributed to
the growth of public expenditure.
l) Nationalization. The state takeover of private enterprises has increased public
expenditure in two ways, firstly by a government paying compensation to former
owners and secondly by subsidizing loss-making nationalized industries.
m) New technology and science. Some new technological developments in such fields as
atomic energy, aerospace and computers are so costly that in some countries they can
only be financed by the state or with substantial aid from government funds. Scientific
advances have enabled doctors to prolong life and reduce suffering, but in some cases
at an enormous cost to governments' health programmes by creating ever-increasing
demands.
n) Creation of super national organizations. The United Nations, NATO, European
Community and other multinational organizations that are responsible for the
provision of public goods and services on an international basis, have to be financed
out of funds subscribed by member states, thereby adding to their public expenditure.
o) Foreign aid. Acceptance by the richer industrialized countries of their responsibility to help the poorer developing countries has channeled some of the increased public expenditure of the donors into foreign aid programmes.
p) Increased complexity of national economies. As economies develop they become
more complex and the interests of various groups within a society come into conflict.
This has led to the proliferation of public bodies whose costs, arising out of their
coordinating, regulatory, administrative or judiciary functions are borne by
governments.
q) Inflation. A general increase in prices has been an international phenomenon during
the 1970s-1980s. Inflation increased the cost of all the activities of the public sector
and was thus a major factor in growth in money terms of public expenditure in many
countries.
r) Demographic changes. Since public expenditure is intended to benefit the people of a country, it could therefore be expected that an increase in total population would result in higher public expenditure. But other demographic trends such as changes in the structure of the population (age and sex) and its geographical distribution also have to be taken into account. The overall effect of the various trends on public expenditure may be such that they cancel each other out, thus the extent to which the growth of population has led to growth of public expenditure depends on the specific conditions in different countries.
Judiesiz answered the question on August 22, 2018 at 18:48