User:Nick Gardner /Sandbox
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
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 [1]. 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 [2] .
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[3]. 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.