Government Expenditure is spending that every Government makes for growing its economy, facilitating national needs and developing infrastructure for increased productive capacity.
Every nation depends upon Government policies for availing certain resources that are often a basic need.
Government makes spending at every level; form local, regional to national level. Governmental institutions at every level incur expenditure; the reason is they are carrying out certain governmental duties. This spending ensures equal distribution of all required resources and bringing economic gain at macro level.
By definition, Government Expenditure means all types of Government spending including Acquisition of Goods and Services, investments and transfer of money in shape of social security benefits.
All goods and services demanded at national level cannot be produced by individuals and firms working at private level. Government interferes in order to bring those goods and services which are either at low quantity as private business`s production or may not be capable to produce such goods and services at all. Another important reason that requires Government to take part in producing goods and services that comprises basic need of community is price levels charged by private producers. Private producers which are mainly funded through borrowing or shareholder`s investments are bound to earn profits to facilitate the aim of owners so they would charge price as per owners expectations not of the customers affordable level. Pricing of goods and services generated by government sector is normally affordable by individual of any income level which may not be the situation in case of Private sector. Government expenditure on producing such goods and services which constitute as basic need is called “Government Final Consumption”.
Goods and services produced through Government final consumption are basic foods stamps, health facilities, educational institutes, military and police, traffic regulators, government housing plans, welfare schemes to promote basic human rights. Emergency handling institutions that manage firefighter role and provide rescue to victims in case of social unrest or natural disaster are also owned and managed by government. Public transportations are mostly governmentally supported services which fulfill individual`s need at economic price.
Another type of government expenditure is investments named as Gross Fixed Capital Formation. Government investment constitutes spending on items which yield long term return. These are basically fixed assets investments and in fact government expenditure on Gross Domestic product which brings new value added to the economy. Expenditure on GDP in thus invested rather than consumed.
Government spending on systems and institution which are bringing added value to the economy. Spending on farming which are yielding a large output to fulfill society`s need at large level. Building of roads, railways and airports also constitute Gross Fixed Capital Formation.
Third type of Government expenditure is the Transfer Money payment, is government spending on items other than acquisition of goods and services, items like provision of social security benefits, retirement funds and also government spending on students’ aid programs.
What are governments sources to fund all of above mentioned government Expenditure? Government collects taxes and achieves gains at end of economic cycle. I-e Situation of Government Budget will tell the position of funds available to government for spending. A surplus budget shows more income to the government as compared to the expenditure made and positive cash flow available for further spending. A deficit Budget on contrary shows the negative cash flow means government available income is short to meet national expenditure so there is a genuine need for government borrowing.