The concept of government growth and expenditure

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1.1.1 THE CONCEPT OF GOVERNMENT EXPENDITURE.

Government expenditure refers to the purchase of goods and services which include public

consumption, public investment and transfer payment consisting of income transfers such as pension

and social benefit and capital transfer. Government expenditure is divided into three main types;

current expenditure, capital expenditure and transfer payment.

Current expenditure is goods and services for current use which directly satisfy individual or collective

needs of the community.

Capital expenditure also known as government investment is government spending in goods and

services intended to create false benefit such as infrastructure investment in transport, health and

research spending. Transfer payment is spending that does not involve transaction of goods and

services, but instead represent transfer of money such as social security payment, pension and

unemployment benefits.

1.1.2 THE CONCEPT OF ECONOMIC GROWTH.

Economic growth is an increase in production of goods and services over a specific period of time.

Economic growth is important if businesses are to grow and prosper. It translates to growth in the

output of the economy as a whole. Growth is measured as the change in the gross domestic product of a

country over one year.

Economic growth has provided insight into why states grow at different rates over time, and this

influences government on her choice of tax rates and expenditure levels that will influence the growth

rate. Economic growth indicates the wealth of a nation since a country with a growing economy is a

country that is getting richer.

1.1.3 GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH.

Wagner’s law of public expenditure emphasizes economic growth as the fundamental determinant of

public sector growth [Wagner,2007]

Vedder and Gallaway[1998] argued that as government expenditure grows, the law of diminishing

returns begin operating and beyond some point further increase in government expenditure contributes

to economic stagnation and decline.

At the early stages of economic growth, the rate of growth of public expenditure will be very high

because government provides the basic infrastructural facilities and most of these projects are capital

intensive, therefore the spending of the government will increase steadily.

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1.1.1 THE CONCEPT OF GOVERNMENT EXPENDITURE. Government expenditure refers to the purchase of goods and services which include public consumption, public investment and transfer payment consisting of income transfers such as pension and social benefit and capital transfer. Government expenditure is divided into three main types; current expenditure, capital expenditure and transfer payment. Current expenditure is goods and services for current use which directly satisfy individual or collective needs of the community. Capital expenditure also known as government investment is government spendi ...
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