Understand the Revenue and Capital Expenditure in the Public Expenditure
Public expenditure has been classified into various categories. Firstly, Government expenditure has been classified into revenue expenditure and capital expenditure. Understand the Revenue and Capital Expenditure in Public Expenditure;
Revenue expenditure is a current or consumption expenditure incurred on civil administration (i.e., police, jails and judiciary), defense forces, public health, and education. This revenue expenditure is of the recurrent type which is incurred year after year.
On the other hand, capital expenditure is incurred on building durable assets. It is a non-recurring type of expenditure. Expenditure incurred on building multipurpose river projects, highways, steel plants, etc., and buying machinery and equipment is regarded as capital expenditure. Transfer Payments and Expenditure on Goods and Services.
Another useful classification of public expenditure divides it into transfer payments and non-transfer payments. Transfer payments refer to those kinds of expenditure against which there is no corresponding transfer of the real resources (i.e., goods and services) to the Government.
Expenditure incurred on old-age pensions, unemployment allowance, sickness benefits, interest on public debt during a year, etc., are examples of transfer payments because the Government does not get any service or goods against them in the particular year.
On the other hand, expenditure incurred on buying or using goods and services is a non-transfer payment as against such an expenditure, the Government receives goods or services. It is therefore called expenditure on goods and services.
It may be noted that expenditure on defense, education, health, etc., are non-transfer expenditure as in return for these, Government obtains the services of army personnel, teachers, doctors, etc., as well as some goods or equipment’s used in these activities. Investments expenditure is undoubtedly non-transfer expenditure as through it Government obtains capital goods.
It is worthwhile to mention that whereas in case of transfer payments, it is the beneficiaries that decisions about the use of resources, in the case of the non-transferable type of expenditure, the Government itself decides about the use of real resources, especially whether they are to be used for consumption or investment purposes.
Revenue expenditure is a current or consumption expenditure incurred on civil administration (i.e., police, jails and judiciary), defense forces, public health, and education. This revenue expenditure is of the recurrent type which is incurred year after year.
On the other hand, capital expenditure is incurred on building durable assets. It is a non-recurring type of expenditure. Expenditure incurred on building multipurpose river projects, highways, steel plants, etc., and buying machinery and equipment is regarded as capital expenditure. Transfer Payments and Expenditure on Goods and Services.
Another useful classification of public expenditure divides it into transfer payments and non-transfer payments. Transfer payments refer to those kinds of expenditure against which there is no corresponding transfer of the real resources (i.e., goods and services) to the Government.
Expenditure incurred on old-age pensions, unemployment allowance, sickness benefits, interest on public debt during a year, etc., are examples of transfer payments because the Government does not get any service or goods against them in the particular year.
On the other hand, expenditure incurred on buying or using goods and services is a non-transfer payment as against such an expenditure, the Government receives goods or services. It is therefore called expenditure on goods and services.
It may be noted that expenditure on defense, education, health, etc., are non-transfer expenditure as in return for these, Government obtains the services of army personnel, teachers, doctors, etc., as well as some goods or equipment’s used in these activities. Investments expenditure is undoubtedly non-transfer expenditure as through it Government obtains capital goods.
It is worthwhile to mention that whereas in case of transfer payments, it is the beneficiaries that decisions about the use of resources, in the case of the non-transferable type of expenditure, the Government itself decides about the use of real resources, especially whether they are to be used for consumption or investment purposes.
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