The classical economists did not attach much importance to
public expenditure. They advocated the policy of laissez-faire. They held the view that
government expenditure were apt to be wasteful. They firmly believed that if
money was left in the private hands, it could bring better returns. According to
them, when there is free economic competition, trade and industry flourishes and
prices are regulated.
This old laissez-faire philosophy has now been discarded. Every government
is taking active part in the organization of its country. The range of economic
activity has too much widened. There has taken place a considerable increase in
government expenditures. This division of the
public finance which received little attention at the hands of the classical
economists is now considered to be the most important department of public
Causes/Factors of Growth of Public Expenditure:
Public expenditure has now-a-day enormously increased due to the intensive
and extensive expansion of state activities. The main factors/causes which have
contributed to the increase in the government expenditures are as under:
(i) Increase in Defense Expenditure: Practically every country of the world
now is spending large quantity of money on preparing for a war or for its
prevention. The countries are feverishly engaged in producing costly war
material. The air to air missiles, the jet aero planes, hydrogen bombs, tanks,
submarines, F-16, etc., cost huge amounts of money to the exchequer. We
conclude, therefore, that the main factor which has contributed to the enormous
increase in the public expenditure is the ever increasing armament race which is
going on in almost every country of the world.
(ii) Expansion of Government Functions:
Increase in public expenditure is also
due to the keen interest which governments are taking for the welfare of
their citizens. Every government is spending large sums of money on construction
of roads, hydro-electric projects, buildings, hospital, canals and other public
works programmes. It is also spending huge amounts of money for providing
education, housing facilities, public parks, libraries, museums, medical aid,
(iii) Backward Area and Increase in Population: Another reason for the growth
of public expenditure is that the modern governments with the limited resources
at their disposal have brought under control the neglected parts of their
territories. The governments are spending vast sums of money for raising the
standard of living of the people hitherto, living in the underdeveloped areas.
The increase in expenditure is also due to the fact the population is increasing
at a fast speed. The welfare states of today, therefore, have to meet the needs
of people living in their countries. The increase in public expenditure is,
(iv) Higher Price Level: Public expenditure has increased because of the
higher price level in almost every country of the world. The government has now
to spend increased amounts of money on the purchase of commodities and services.
The public' expenditure is, therefore, bound to go up.
(v) Increase in Public Revenue: The most important factor which has
contributed to the expansion of public expenditure is the increase in public
revenue. Since the Industrial Revolution, there has been continuously taking
place an increased use of heavy plants and complex machinery. The per capita
income of the people has gone up. As the taxable capacity of the people has
increased, so the revenue of every state has also increased. With the rise in
public revenue, the government expenditure is surely to go up.
(vi) Duplication of Expenses: Some increase in public expenditure is also due
to the fact that government is sometimes wasteful and extravagant in its expenditure. Duplication of government expenditure is not uncommon to any
one of us.
(vii) Accelerating Economic Growth: The government of every country is doing
its utmost for accelerating the economic growth in order to raise the standard
of living of the people. This has also led to the expansion of state