Public expenditure -Classification

PUBLIC EXPENDITURE - CLASSIFICATION

Adam Smith has classified public expenditure on the basis of function of government.

a)Defence expenditure includes expenditure incurred on the purchase of arms and ammunition, defence personnel etc.

b)Civil expenditure includes adminstrative expenditure incurred for the maintenance of law and order and justice in the country.

c) Economic expenditure includes expenditure incurred on commercial activities like rail, roads etc.

d)Social expenditure includes expenditure on education,public health , social security schemes etc.

According to Dalton , classification are given in following ways :

a) Maintenance of ceremonial head of state , including diplomatic representatives.

b) Maintenance of machinery of civil government which includes expenses of executive and legislative.

c) Maintenance of army and police to protect country from foreign aggression and to maintain law and order.

d) Administration of justice.

e) Expenditure on development of agriculture,industry , commerce, transport , communication , posts and so on.

f)Social expenditure on education , public health , social security schemes etc.

g)Public debts charges including payment of interest and repayment of principal.

On the basis of benefit

a) Expenditure that confers a general benefit on all.

b) Expenditure that confers special benefit on all.

c) Expenditure that confers a special benefit on certain persons and at same time a common benefit on others.

d) Expenditure that confers special benefit on some individuals.

On the basis of Revenue

a) Expenditure without any direct return of Revenue , example -poor relief , loss on wars.

b) Expenditure without direct but considered as productive expenditure on human capital ,example-On education.

c) Expenditure with partial direct return ,example-On subsidised railways.

d) Expenditure with full return on profits , example-On gas services , post office .

On the basis of necessary, useful and superfluous

a) Necessary expenditure includes expenditure which state has to incur and which cannot. E postponed.

b)Useful expenditure includes expenditure which is desirable but can be postponed like govt. Commitments.

c) Superfluous expenditure is the expenditure which the state nay or nay not incur like on social security schemes.

On the basis of effects on welfare of people

a) Protective expenditure that incurred to protect life and property of the citizens.

b) Development expenditure that incurred to promote development of the country.

Development and Non - development expenditure

Development expenditure includes expenditure on the developmental activities which have direct influence on economic development of the country.

a) Infrastructure : Development of infrastructure includes the development of roads , railways  communications , construction of dams etc.

b)Basic industries: Expenditure on development of large basic industries like iron , steel , heavy engineering , machine tools to strengthen the country's industrial structure.

c) Agriculture : Government incurs huge expenditure on the development of agriculture in the form of loans , subsidies on food , fertilizers etc.

d)Social overhead capital :Expenditure on education, health housing  gives incentives to private sector to raise output.

e)Other development expenditure : Some other areas of development expenditure includes rural development schemes , village and small scale industries , science and technology etc

Non - Development expenditure is Considered necessary from administrative point of view . These expenditure includes

a)Defence expenditure :Huge expenditure is done by the government on arms , ammunition to protect the domestic nation .

b)Interest on public debt : Payment of interest on public debt is considered as unproductive.

 c) Expenditure on tax collection: Salary bills in the tax department constitute major item in expenditure on tax collection .

d) Expenditure on police : Large expenditure on police is also essential for maintenance on internal peace and keeping law and order under control.

e) Expenditure on administration :Large and increasing expenditure on administrative machinery is normal feature.

On the basis of importance

a) Primary expenditure includes all expenditure which must be incurred by every stare . 

b)secondary expenditure includes expenditure on remaining items like education , health etc.

On the basis of productive and unproductive

a)Productive expenditure is that which directly or indirectly develops natural and human resources and increases national income. b)unproductive expenditure is that expenditure which does not result in any rise of national income example expenditure on war .

on basis of transferability

a)Transferable expenditure is said to be transferred when it takes the form of payment of money to people either gratuitously or in purchase of existing property rights , example payment of interest on govt. Debt , pensions , subsidies etc . 

b)non transfer expenditure is said to be non transferable expenditure which includes on the purchase of current services of resources of nation , expenditure on army , navy , air force .

On the basis of grants and purchase price

a)Grants are the expenditure which state incurs and does get any commodity or service in return the expenditure interned as grant line expenditure .

b)purchase price are the expenditure which the state acquires or get some commodity or service in return the expenditure in classified as purchased price like salary of govt. Employee etc.

On the basis of constant and variable 

a)Constant expenditure is that amount which does not depend upon the services that are financed by it. Expenditure on defence is its example.

b) Variable expenditure is that which increases with every increase in uses of public services by the people for whose benefit it is incurred  .

On the basis of economic

a)Income and expenditure on revenue account.

b)Income and expenditure on capital account.