Sample Essay on Factors Influencing Government Spending
Government spending varies from country to country. This means every country has unique expenditure and priorities. A general illustration would be to consider the expenditure of developed and developing countries. Even though countries whose economies are at per may have related spending patterns and these, they cannot be the same. In this essay, we discuss factors, which determine government spending.
First, government spending encompasses consumption, investments, and transfer payments. Where the government acquires goods and services for immediate consumption by its people is called final consumption expenditure. On the other hand, government investment refers to where the government acquires goods and services to create future benefits and opportunities. These may include the development of infrastructure and investing in research. Clearly, these goods and services do not immediate benefits. The two classes of spending, i.e. government investment and are final consumption constitute the gross domestic product.
Government spending is financed in various ways. For example, this could be through levies, loans, or seigniorage. This means that every government must be aware of how to finance its expenditure before making the approval. Governments run in huge debts because they spend without knowing how to service their debts or they have limited sources of revenue to meet their needs. Thus, the decision for a government to spend should not be imposed by another country or through coercion of whatever nature.
Over the years, government spending in almost every nation around the world has steadily increased. Both in developed and developing countries government expenditure grew significantly after mid 20th century because of various reasons. Among these were the emerging needs of governments and people especially in terms of research, and technology. Most governments heavily invested in projects that offered future opportunities and wealth for their people. The needs of various sectors of the economy further increased and changed. For example, there has been continuous growth of expenditure in the health sector because of research that goes on. This has promoted discoveries and innovations, which save the lives of people.
In the past, wars largely accounted for the largest expenditure by governments, especially the superpowers, which regularly fought. War demands that a government is set by having state-of-the-art artillery, military technology, and enough supplies for the operation. A country that engages in war without prior evaluation of the warfare needs against available resources may run into debts. However, in the absence of war, a country’s needs and priorities largely determine government spending.
Another factor that determines government spending is fiscal policy. This is usually at the federal level and is applied where there is a need to neutralize instability emanating from other government expenditures. In cases where the aggregate expenditure falls because of limited spending by either the private sector or households, the government usually has to spend more. This policy is employed to increase government purchases. However, it is the role of the government to control the purchases, since excess of them results in inflation. Before an economy reaches this point, the government cuts its purchase power.
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