Public Expenditure

Topics: Public finance, Macroeconomics, Economics Pages: 14 (4135 words) Published: April 28, 2013

1. Introduction

2. Theoretical review
a. The Nature and Classification of Public Expenditure
b. Theories of Public Expenditure
c. Causes\ Goals of Public Expenditure
d. Effects Of Public Expenditure

3. Conclusion


Economic theory postulates that government or the state has 5 basic functions: 1. Promotion of economic growth and development
2. Maintenance of price stability
3. Seek favourable balance of payment
4. Facilitate full employment of factors of production.
5. Promote equitable distribution of wealth and income.
To enable it fulfill these functions, the State incurs expenditure on such items as personnel costs e.g. salaries and training allowance, cost of building and maintaining infrastructure like roads, rails and other public utilities, transfer payments such as pensions, gratuities, subsidies, and scholarships. Prior to 1960, the colonial authorities had focused only on areas that would benefit it. Thus, for instance, rails were constructed mainly to link the sea ports to the hinterland, the objective being to facilitate easy evacuation and export of raw materials to feed British factories. The rail network also helped in distributing the finished goods from the sea ports when they were imported. No attempt was made to develop local industries because that would create unwelcome competition for Her Majesty’s citizens and reduce the size of their market. A similar trend played out in the educational sector where emphasis was placed on the training of teachers and clerical staff. The production of competent hands in areas related to science and technology were downplayed or neglected entirely. Nigerians were made to believe that technical matters were better handled by Westerners and that they should be content with being second in line. Essentially, the colonial authorities felt its interests were best served by keeping public expenditure low and concentrating it on areas that best advance those interests. During the 1950s, total government expenditure averaged only about 8.19% of the Gross Domestic Product at current factor cost... At independence, the new nationalist government inherited an economy that could at best be described as primitive, agrarian and import-consumer oriented. To correct this, the authorities embarked on a deliberate policy of industrialization. The reasoning was that industrialization will boost local capacity, create jobs for Nigerian scientists and technicians, reduce our dependence on imports, diversify the economy and raise the overall level of economic activity. The emphasis on industrialization meant a sharp rise in public expenditure. Neither the government nor the people seemed to mind if it will jump start the economy and accelerate its growth. The lofty goals of this policy endeared it to successive governments. Between 1960 and 2001, Nigeria had launched 5 national development plans and 6 rolling plans. These plans entailed the execution of large capital-intensive projects like refineries, hydro-electric dams, steel mills, car assembly plants and other industries. Then came the civil war accompanied by the sharp rise in defence expenditure. High defence spending became a common feature of national budgets during the military era. This trend was soon transmitted to states, local governments and even some parastatals with the introduction of ‘security vote’ in their budgets. After the civil war, government embarked on reconstruction and rehabilitation. Then came the oil boom. The oil revenue that accrued to the State exceeded its expectations that the authorities virtually threw caution to the wind and went on a spending spree; establishing public enterprise in almost all economic sectors and adopting any policy that promised improvement, however slight, in public welfare. Schemes launched during this period included Green Revolution, Back...

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