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What are the consequences of growth of public expenditure?

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a) A political consequence of the growth of public expenditure is the increased size of the
public sector and hence of the power of the state.
b) A social consequence of the extension of the welfare system is to allay the fear of
deprivation that is consequent to unemployment, sickness and old age. The need for
people to provide for themselves is reduced.
c) Development of a welfare mentality is likely to increase people's dependence on
government support and to lead to the creation of what politicians and social
commentators call the 'underclass' in a society. Its members caught in the poverty trap
may lack the means, ability, resourcefulness and incentive to break out.
d) An economic consequence is an increase in taxation or borrowing or both, to finance
rising expenditure.
e) A disincentive effect on work and enterprise may result from an increase in taxation
required to finance provision of public goods and services but economists disagree on
this.
f) National debt will increase as a result of borrowing and this will affect the rates of
interest and supply of capital to industry.
g) The rate of economic growth may be adversely affected by the; transfer of resources
from use in manufacturing in the private sector to the public sector for provision of social
services.
h) The productive capacity and export potential of an economy may be reduced. Public
goods and services, such as social security benefits, are not exportable and do not earn
foreign currency.
i) The balance of payments, will suffer if exports are reduced and when interest payments
on the money that the government had borrowed abroad, or repayment of capital, become
due.
j) The prosperity of a country may, however, be increased if public expenditure is on
projects that further economic development. If this happens then the balance of payments
may improve.
k) The standard of living of the people in general and of some groups in particular can
be increased by the provision of public goods and services.
l) Inflation resulting from the injection of public spending into the income flow of a
country adversely affects not only the standard of living but the whole economy
m) Stabilization of the economy may result from the use of public expenditure to counteract
inflation and deflation.
n) The level of employment may rise, but if the effect of increased public spending is
inflationary, employment will be likely to fall.
o) A more egalitarian society can be achieved by narrowing the difference in the level of
consumption among its members by means of state benefits financed out of progressive
taxation.
p) Increased efficiency in provision of public goods and services as governments put
greater emphasis on value for money in an attempt to curb growing public expenditure.

NatalieR answered the question on June 21, 2022 at 10:12

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What are the consequences of growth of public expenditure?

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