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CH7: Public Expenditure & Growth (Changes as Developing (Country…
CH7: Public Expenditure & Growth
Constitutional Importance
Constitution is supreme law; provides for tax and expenditure
Constitution and Public Goods
Contains provisions regarding expenditure
Gov obliged to provide basic goods and services
Bill of Rights
Adequate housing and healthcare, food and water
Typically mixed and merit goods
Provision made for adequate resources
Constitutional Entitements
Rights to goods and services
Subject to resource availibility
Concourt has to rule from time 2 time
Refrains from granting individual claims
Focus on comprehensive plans
Size & Trends
Size
Resource Utilization (Exhaustive)
Measured as
Real
% of GDP
Biggest spend on
Gov wages
Purchase goods and services
Social bbenefits
Resource Mobilization (Non-Exhaustive)
Trends
Utelisation
Significant growth since 1960
Both as Real and % of GDP
Change in Composition
See table 7.1 p119
Functional shifts
See Table 7.2 p121
Changes as Developing (Country Comparison)
Low Income Countries
Infrastructure
Stimulate industrial development
Establish primary education and healthcare
Middle Income Countries
Education
Healthcare
Research and Development
Develop social security system
High Income Countries
Huge increase in Transfer Payments
Models of Gov Expenditure (Reasons for Growth)
MACRO
(broad expenditure based on aggregated variables)
Wagner Stages
of Dev
Structural change during dev influences extent of public spending
Developing countries: Gov spend rise inevitable
Public expend increase if per capita income increase
Gov expend increase greater than output of economy
Growth = ^ $$;
^ spend per capita
Have to ^ per capita income
v Growth -> ^ TaxesorBorrowing
Peacock & Wiseman's Displacement Effect
Use Political Theory; influence of political events
Based on Wagner: Growth -> ^ expenditure
Resistance of voters to ^ taxes considered
National
crises
^ expenditure / ^ taxes (displacement effect)
After crises: Typically not return to previous levels
May explain SA model
Melzer-Richard Hypothesis (Redistribution)
Redistribution policies affects Gov expenditure growth
Majority voter determined magnitude of spend
Median voter key: Determines tax levels
Decreased economic benefits could occur (avoiding higher tax)
MICRO
(public individual & institution decision-making)
See Assignment 1
See Assignment 1