Scheduling heuristic Alternative Processor within Threshold (APT)

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MODULE 6: Government and the Economy

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3.0. Main Content

3.1 Meaning of Government Spending

Government spending is the spending activities carried out by the government of a country. There are essential services that government provides. These include national defence, provision of education, health, public roads, policing, internal and external securities, and possibly provision of social securities – unemployment benefits, pension schemes and so on.

Government spending also means Government expenditure and is a term used to describe money that a government spends. Spending occurs at every level of government, from local city councils to federal organizations. There are several different types of government spending, including the purchase and provision of goods and services, investments, and money transfers.

In a free market economy, not all basic needs are generally met by the private sector. Some goods or services may not be produced at all, while others may be produced in enough quantity or at an affordable rate for citizens. Much of government spending is involved in the creation and implementations of these goods and services. This type of government spending is referred to as government final consumption.

Some examples of government final consumption include the creation and maintenance of the military, police, emergency, and firefighting organizations.

These are funded by federal and regional governments, in order to provide for both the safety of the country from attack, and the safety of citizens from crime and disasters. Others examples include programs such as health care, food stamps, and housing assistance for disabled or severely low-income citizens. Public education and public transportation infrastructure are other main categories of this form of government spending.

Since the beginning of the 70's, every category of Nigerian government spending has increased more rapidly than envisaged. This, primarily, can be attributed to the discovery of crude oil and the upsurge in the prices of crude petroleum that brought in more revenue to the government that it has ever generated.

Self assessment Exercise

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“Government Expenditure also means Government Spending”. Do you agree with the statement above?

3.2. Reasons for Increase in Government Spending

The following reasons are the factors that lead to increase in government spending overtime.

(a). Defence: Over the years, expenditures on defense have been on the increase in most African countries. The need for a strong and well-armed force necessitates the building of additional barracks, purchase of military armaments and other military equipments. Wars and frictions in most African countries have, made such governments to increase expenditures on defense.

(b). Population: Population in most African countries has been increasing.

Nigeria's population was 63 million in the 1963 census, but the 1991 census put the country at 88.5 million, while latest estimate put the country at over a 160 million people as population increases more amenities would have to be provided, more schools have to be built, hospitals, etc.

(c). Development projects: After independence, most countries in West Africa embarked on development projects. They began building airports, refineries, hospitals, etc. These involved huge cost and consequently increase government expenditure.

(d). Depreciation and devaluation of currency: Over the years most West African countries have either devalued their currencies or allowed it to depreciate.

This act only result in high prices of goods and services which in turn increases the expenditure of the government.

(e). Interest on debt: The public debts of most West African countries have been on the increase over the years. Likewise the servicing of the debt have also been on the increase and have gone to increase government expenditure.

Self Assessment Exercise

Discuss at least five (5) reasons that could lead to increase in Government spending.

3.3. How Government Spending is Financed

Government generates income through various means to finance its spending, Some of the means are as follows: Rents, royalties and profits: These includes revenue from mining rights, rent from the use of government properties, profits from all government businesses, etc.

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(I).Taxation: Government get to finance its spending through various tax levied on its citizens and corporate organization.

(II).Fines, Fees and Special Charges: These includes fines on defaulters, traffic offences, etc., income derived from fees such as motor vehicle licenses, water rate, toll gate, etc.

(III). Loans: This takes the form of:

a. Short-term loans: These are obtained through the sale of treasury bills and Certificate to members of the public.

b. Medium and long-term loans: These include long term stocks sold also to the public.

c. Foreign loans: These are loans obtained from International Monetary Fund. World Bank, Paris Club, etc.

Self Assessment Exercise

Do you think Government spending in Nigeria has improved the Economy?

Discuss.

4.0 Conclusion

In this unit we have critically appraise the meaning of government spending and we can then conclude that government spending or expenditure is spending made by the government of a country on collective needs and wants such as pension, provision, infrastructure, etc. However, until the 19th century, public spending was limited as laissez faire philosophies believed that money left in private hands could bring better returns. Moreover in the 20th century, John Maynard Keynes argued the role of public spending in determining levels of income and distribution in the economy. Since then government spending has shown an increasing trend.

5.0 Summary

In this unit we analyse that government spending (or government expenditure) includes all government consumption and investment but excludes transfer payments. Government acquisition of goods and services for current use to directly satisfy individual or collective needs of the members of the community is classed as government final consumption expenditure. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment (gross fixed capital formation). Finally, the first two types of government spending, final consumption expenditure and gross capital formation, together constitute one of the major components of gross domestic product.

6.0 Tutor-Marked Assignment

131 1. Define the term ‘Government spending’

2. Critically discuss the reasons for increase in Government expenditure.

3. Discuss how Government expenditure is financed.

7.0 References/Further Readings

Abdullah H.A, (2000). The Relationship between Government Expenditure and Economic Growth in Saudi Arabia Journal of Administrative Science, 12(2): 173-191.

Al-Yusuf Y, (2000). Does Government Expenditure Inhibit or Promote Economic Growth, Some Empirical Evidence from Saudi Arabia. Indian

Economic Journal, 48 (2).

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UNIT 2: MEANING OF GOVERNMENT REVENUE