The second thesis dealing with the growth of public expenditure was put forth by Wiseman and Peacock in their study of public expenditure in UK for the period
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1955. The main thesis of the authors is that public expenditure does not increase in a smooth and continuous manner, but in jerks or step like fashion. At times, some social or other disturbance take place, creating a need for increased public expenditure, which the existing public revenue cannot meet. While earlier, due to an insufficient pressure for public expenditure, the revenue constraint was dominating and restraining an expansion in public expenditure, now under changed requirements such a restraint gives way. The public expenditure increases and makes the inadequacy of the present revenue quite clear to everyone. The movement from the older level of expenditure and taxation to a new and higher level is the displacement effect. The inadequacy of the revenue as compared with the required public expenditure creates an inspection effect.
Furthermore, the government and the people review the revenue position and the need to find a solution of the important problems that have come up and agree to the required adjustments to finance the increased expenditure. They attain a new level of tax tolerance. They are now ready to tolerate a greater burden of taxation and as a result the general level of expenditure and revenue goes up. In this way, the public expenditure and revenue get stabilized at a new level till another disturbance occurs to cause a displacement effect. Thus each major disturbance leads to the government assuming g a larger proportion of the total national economic activity. In other words, there is a concentration effect. The concentration effect also refers to the apparent tendency for central government economic activity to grow faster than that of the state and local level governments. British data are consistent with this hypothesis, but its application to mother countries needs verification. Moreover, this aspect of concentration effect is also closely connected with the political set of the country.
On the face of it, Wiseman Peacock hypothesis looks quite convincing. But, we must remember that they are emphasizing the recurrence of abnormal situations, which cause sizeable jumps in public expenditure and revenue. In all fairness to the historical facts, we must not forget that on account of advancement of the economy and the structural changes therein, there are constant and regular increments in public activities as also an increase in their intensity and quality. Increasing population, urbanization and an ever-increasing awareness of the civic rights on the part of the public, coupled with an increasing awareness of its duties on the part of the state, leads to an upward movement of public expenditure. To an extent, public expenditure gets financed by ever-increasing revenue, which is made possible through the expansion and structural changes in the economy. These days, in underdeveloped countries like Nigeria, the state is deliberately trying to increase its activities and makes an effort to finance those activities through various tax efforts to finance those activities through various tax efforts. Even in developed countries, the state finds that it has to perform an increasing regulatory duty to protect the economy against instability and excessive inequalities of income and wealth.
Thus, Wiseman Peacock hypothesis is still a description of a particular tendency and does not isolate all the relevant causes at work.
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Self-Assessment Exercise
Discuss the differences between the Wagner‘s law of increasing state activities and Wiseman Peacock Hypothesis.
4.0 Conclusion
Public Expenditure refers to Government expenditure that is Government spending. It is incurred by Central, State and Local governments of a country. Public expenditure can be defined as, "The expenditure incurred by public authorities like central, state and local governments to satisfy the collective social wants of the people is known as public expenditure
5.0 Summary
In this unit, we have learnt and discussed on the meaning of public expenditure, causes of increase in public expenditure, types of public expenditure, principles Governing public expenditure or canons of public expenditure. However, in this unit we also discuss on importance of public expenditure, Wagner‘s law of increasing state activities, Limitation of Wagner‘s model and Wiseman-Peacock hypothesis.
6.0. Tutor-Marked Assignment 1. Define the term ‗Public Expenditure‘
2. Discuss the causes of increasing in public expenditure 3. List and explain types of public expenditure
4. Discuss the importance of public Expenditure
5. Discuss the differences between Wagner‘s law of increasing state activities and Wiseman-Peacock hypothesis
6. Discuss the limitations of Wagner‘s model 7.0. REFERENCES/FURTHER READING
Subaru, K. J., (2017). Principles and Practice of Public Sector Economics a textbook 2nd edition, Kent Press limited.
Temple, A. A., (2015). Introduction to Public Sector Economics, a textbook 1st edition, Deighton Publication Company.
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MODULE FOUR Externalities
Unit One: Meaning of Externalities Unit Two: Market Failure
Unit Three: Cost-Benefit Analysis
Unit One: Externalities CONTENTS
1.0 Introduction 2.0 Objectives 4.0 Main content
3.1 Meaning of Definition of Externalities 3.2 Types of Externality
3.3 Effects of Externalities
3.4 Externalities and Allocative Efficiency 3.5 Solving the Externality Problem
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0. INTRODUCTION
An externality is a consequence of an economic activity experienced by unrelated third parties; it can be either positive or negative. Pollution emitted by a factory that spoils the surrounding environment and affects the health of nearby residents is an example of a negative externality. The effect of a well-educated labor force on the productivity of a company is an example of a positive externality. Externalities occur in an economy when
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the production or consumption of a specific good impacts a third party that is not directly related to the production or consumption. Externalities, such as pollution, are one of the main reasons why governments step in with increased regulations.
Almost all externalities are considered to be technical externalities. These types of externalities have an impact on the consumption and production opportunities of unrelated third parties, but the price of consumption does not include the externalities.
This makes it so there is a difference between the gain or loss of private individuals and the aggregate gain or loss of the society as a whole. Oftentimes the action of an individual or organization results in positive private gains but detracts from the overall economy. Many economists consider technical externalities to be market deficiencies.
This is why people advocate for government intervention to curb negative externalities through taxation and regulation.
Most externalities are negative. Pollution, for example, is a well-known negative externality. A corporation may decide to cut costs and increase profits by implementing new operations that are more harmful for the environment. The corporation realizes costs in the form of expanding its operations but also generate returns that are higher than the costs. However, the externality also increases the aggregate cost to the economy and society, making it a negative externality. Externalities are negative when the social costs outweigh the private costs.
Some externalities are positive. Positive externalities occur when there is a positive gain on both the private level and social level. Research and development (R&D) conducted by a company can be a positive externality. R&D increases the private profits of a company but also has the added benefit of increasing the general level of knowledge within a society. So, while a company such as Google profits off of its Maps application, society as a whole greatly benefits in the form of a useful GPS tool. Positive externalities have public, or social, returns that are higher than the private returns.
2.0. Objectives
At the end of this unit, you should be able to:
Define and understand the meaning of Externalities
Know the types of Externalities
Know the effects of Externalities and Allocative Efficiency
Understand how to solve the problem of Externality.
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3.0. Main Content