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Theories On Government Spending

Government spending refers to money spent by the public sector to provide goods and services. It is funded primarily through tax collections and government borrowing. Government spending is used to supply services not provided by the private sector, achieve macroeconomic goals, subsidize industries, and redistribute income. Fiscal policy utilizes government spending and taxes to influence the economy. There are discretionary and automatic components of fiscal policy. Spending can be current, covering short-term needs, or capital, addressing long-term investments. Historical budgeting principles emphasize publicity, clarity, comprehensiveness, and accuracy.

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Faidah Palawan Alawi
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73 views2 pages

Theories On Government Spending

Government spending refers to money spent by the public sector to provide goods and services. It is funded primarily through tax collections and government borrowing. Government spending is used to supply services not provided by the private sector, achieve macroeconomic goals, subsidize industries, and redistribute income. Fiscal policy utilizes government spending and taxes to influence the economy. There are discretionary and automatic components of fiscal policy. Spending can be current, covering short-term needs, or capital, addressing long-term investments. Historical budgeting principles emphasize publicity, clarity, comprehensiveness, and accuracy.

Uploaded by

Faidah Palawan Alawi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Republic of the Philippines

Bangsamoro Autonomous Region in Muslim Mindanao


LANAO CENTRAL COLLEGE INC.
Awar St., East Basak Malutlut, Marawi City

Reporter : FAIDAH O. PALAWAN


Course : PA 109 (Public Fiscal Administration)

Theories on Government Spending

Government spending refers to money spent by the public sector on the acquisition of goods
and provision of services such as education, healthcare, social protection, and defense.

Sources of Government Spending

1. Tax collections by the government

Direct Tax- is a tax that a person or organization pays directly to the entity that imposed
it.

Indirect taxes- taxes are basically taxes that can be passed on to another entity or
individual.

2. Government borrowing

Borrowing money from foreigners- money borrowed by a government, corporation or


private household from another country’s government or private lenders

Purposes of Government Spending

 To supply goods and services that are not supplied by the private sector.

 To achieve improvements in the supply-side of the macro-economy

 To provide subsidies to industries that may need financial support for either their
operation or expansion.

 To help redistribute income and promote social welfare.

Fiscal policy
It refers to the use of government spending and tax policies to influence economic conditions
especially macroeconomic conditions, including aggregate demand for goods and services,
employment, inflation, and economic growth.

There are two types of fiscal policy, discretionary and automatic.

1. Discretionary policy refers to policies that are implemented through one-off policy
changes.

2. Automatic stabilizations are changes in government spending and taxation that do not
need approval by Congress or the President

Types of Spending

1. Current spending

They are for the short term and include expenditure on wages and raw materials.

2. Capital spending

They are for the long term and do not need to be renewed each year.

Historical budget principles are substantially as follows:


1. Publicity
2. Clarity
3. Comprehensiveness
4. Budget Unity
5. Detailed Specification
6. Prior Authorization
7. Periodicity
8. Accuracy

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