Factors Affecting Government Spending

Factors Affecting Government Spending

There are several factors affecting government spending. Government spending can be defined as any expenditure that the national, regional or local governments make. In most nations, government spending comprises of a significant gross national product’s portion and it is accomplished in several areas. Generally, the government or the public sector engages in revenue raising, spending and borrowing. These roles are very vital in a mixed economy. Several non-income factors can affect government spending including floods and earthquakes. Nevertheless, there are major determinants of government spending in any country.

When factors affecting government spending become apparent

Factors that affect government spending become apparent whenever a government engages in spending.

Such instances include but are not limited to the following:

  • When the government wants to supply services and goods that cannot be supplied by the private sector.
  • When the government wants to achieve improvements on the supply-side within a macro-economy, including expenditures on training and education to enhance labor productivity.
  • To reduce externalities’ negative effects including pollution controls.
  • For industrial subsidies which may necessitate financial support that the private sector might not avail.
  • To assist in redistributing income and to realize more equity.
  • To inject more spending in the economy thereby helping in the realization of more aggregate demand as well as economic activity.

How government spending is affected by different factors

Government spending is affected by tax policies indirectly. The amount of collected revenues increases when the government increases taxes on certain services and products with an aim of promoting economic growth. When the government has more revenues, it is likely to spend more because there is money to spend. On the other hand, government spending is decreased when the government collects a little amount of revenues.

The economy of a country can be hindered by its monetary regime on the basis of the effects that it has on spending by the government. When the monetary system is stable, the spending environment is good. However, when the monetary system is poor, there are crippled investment opportunities and the overall economic confidence among the people and their government is ruined and this reduces government spending.

The economy of a country with a free trade grows at a faster rate and this increases spending by the government. However, if trade in a country is restricted through the imposition of policies that cause economic inefficiency, government spending reduces. Economic efficiency that results from free trade boosts living standards while promoting the government.

  • Private property

When major resources are controlled by the government, political forces are likely to dominate various economic factors. This will influence how the government allocates resources. As such, for government spending or purchases to be made, certain private property rights have to be observed and these will affect government spending and economic performance of a country.

  • Politics

Politics have a significant impact on government spending. The activity of the government is always bubbled by politics when there are political winds blowing in varying directions. Government spending, more so, on social projects is reduced by politics. Various political forces decrease government expenditures because there are groups that convince the political leaders that they should focus on important activities. Such groups keep the government on its toes when it comes to spending by ensuring that more expenditure goes to national defense, the environment and space programs. This reduces the overall government spending.

Why its important to consider the factors affecting government spending

Evaluating the factors that affect spending by the government are very important because they can increase or decrease government expenditure. Some of these factors can either increase the purchases that the government has to make or decrease purchases by the government. As such, they play a vital role during government budgeting and resource allocation.

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