User:Nick Gardner /Sandbox: Difference between revisions

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The major component of the cost of public expenditure is the foregone benefit that could have been obtained from other uses of the resources involved. If the product or service could otherwise be provided under fully competitive conditions, its provision can be presumed to result on a net loss on the grounds that  a greater  benefit can be presumed to be foregone


 
Public social expenditure comprises cash benefits, direct "in-kind" provision of goods and services, and tax breaks with social purposes. To be considered "social" , benefits have to address one or more social goals. Benefits may be targeted at low-income households, but they may also be for the elderly, disabled, sick, unemployed, or young persons. Programmes regulating the provision of social benefits have to involve: a) redistribution of resources across households, or b) compulsory participation. Social benefits are regarded as public when general government (that is central, state, and local governments, including social security funds) controls relevant financial flows. The expenditures shown here refer only to public social benefits and exclude similar benefits provided by private charities.
but there can also be costs arising from the "crowding-out" of private-sector investment. It has been argued that when  government bonds are used to finance consumption rather than investment, the total of the country's investment is diminished, leading in time to a loss of potential output. Crowding-out is seldom complete, however, but depends upon a range of factors including elasticities of demand for investment and for money <ref> See Frederick Fourie: ''How to Think and Reason in Economics'', Juta 2001</ref>. During a recession, however,  crowding-out may to some extent be offset by  "crowding-in" as government spending makes up for the deficiency in private sector spending, leading to a recovery of demand and an increase in private-sector investment.  The balance between crowding out under particular circumstances is a matter of controversy <ref> See "The Crowding-out Controversy" on page 248 of William Baumol and Alan Blinder: ''Economics, Principles and Policy'', Harcourt Bruce Jovanovich, 1979 </ref> .
 
The quantification  of the economic effects of public expenditure is subject to errors and  uncertainties arising from the practical difficulty of determining the preferences of those affected and the intellectual obstacles to the aggregation of their gains and losses of economic welfare<ref> See "The Social Welfare Controversy"[http://en.citizendium.org/wiki/Welfare_economics/Tutorials#The_social_welfare_controversy]</ref>. In contrast, social welfare is necessarily maximised, according to the theorems of [[welfare economics]], by market forces operating under conditions of ''perfect competition'' and ''flexible prices''.  For those reasons, it is generally presumed that social welfare is reduced if the public sector controls the provision of  goods and services that could otherwise be supplied by the private sector.

Revision as of 06:46, 4 November 2009

Public social expenditure comprises cash benefits, direct "in-kind" provision of goods and services, and tax breaks with social purposes. To be considered "social" , benefits have to address one or more social goals. Benefits may be targeted at low-income households, but they may also be for the elderly, disabled, sick, unemployed, or young persons. Programmes regulating the provision of social benefits have to involve: a) redistribution of resources across households, or b) compulsory participation. Social benefits are regarded as public when general government (that is central, state, and local governments, including social security funds) controls relevant financial flows. The expenditures shown here refer only to public social benefits and exclude similar benefits provided by private charities.

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