theme 6 - public expenditures “the only good budget is a balanced budget.” (adam smith) 1
TRANSCRIPT
Theme 6 - Public Expenditures
“The only good budget is a balanced budget.”
(Adam Smith)
1
Structure of lecture
• Public expenditures
• System of public budgets
• State budget
2
Public expenditures
3
•Government•Expenditures (G)
•Transfers (Tr)
Public Expenditures
Private and Public sectors
4
Private sector
Public Sector
Consumption (C)
Investment (I)
Gov. Investment (IG)
Gov. consumption (CG)
G
Tr Transfers)T (Taxes)
Public expenditures classificationPublic expenditures can be split into
two groups:
• Current expenditures for:
– goods and services,
– interest payments,
– subsidies,
– transfers.
• Capital expenditures.5
Macro-economic aspects of public expenditures
• Public expenditures are important part of total incomes and expenses.
• Public expenditures for goods and services (G) = an important part of AD.
– Remember?
AD (aggregate Demand)= Agg.Expenditure =C + IG + G + Xn
• Trends of G influence employment and production in the economy.
• G could work as multiplier▼ in fiscal policy.
6
Public expenditures are growing
„The public sector grows with increasing income per capita“
7
Alfred Wagner
(1835 – 1917)
Factors influencing growth of public expenditures
• demographic factors:
– shift from self-sufficiency on farm with large family to urban mutual dependence,
– age structure changes,
– etc.
• threshold effect,
• inflation trends (higher costs for goods and services),
• technological changes (increased labour productivity),
• production volumes growth – increase of incoming taxes,
• increasing consumption,
• political and social influences,
• etc.
8
Demographic factors: Population structure in the CR by age group and sex in 1930
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85+
80-84
75-79
70-74
65-69
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
60-64
•menwomen
•menwomen
Population structure in the CR by age group and sex in 1990
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•menwomen
•menwomen
11
12
13
•6 000 • 8 000 • 10 000 • 12 000 • 14 000
30
50
70
• %
ITAL. AUT.
U.K.
FR.
BELG.
CAN.
GER
SWE.
USA
NOR.
JAP. AUST.
GDP per capita
• Size of the public sector as % of GDP
14
15
X1,X2 – consumption of good X before and after subsidy
Y1,Y2 – consumption of good Y before and after subsidy
I1,12 Budget Lines
U1, U2 Indifference Curves
X1,X2 – consumption of good X before and after subsidy
Y1,Y2 – consumption of good Y before and after subsidy
I1,12 Budget Lines
U1, U2 Indifference Curves
State budget expenditures► are the transfers and purchases of goods and services.
Transfers = financial flows from state budget to individual subjects (firms and households).
• Transfers to households: Social insurance, childern allowances, unemployment allowances etc.
• Transfers to firms: Capital and non-capital subsidies.
Govermental purchases of goods and services: capital and non-capital.
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Interes t expenditure; 34; 3%
Subs idies ; 59; 5%Capital form ation;
138; 11%
Other; 45; 4%
Collective consum ption; 311;
25%
Social trans fers ; 639; 52%
State budget expenditures items1. social expenditures
2. education
3. administration (civil service)
4. highway
5. local governments
6. defence expenditures
7. security
8. housing
9. health service
10. support of agriculture and forest
11. personal railage
12. governmental reserve
13. culture
14. subsidies on heating
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Growth of Expenditures of Central Government of the Czech Republic, 1998 – 2012 (in thousands CZK)
Total Expenditures, real prices (1998)
Social Expenditures, real prices (1998)
Educational Expenditures, real prices (1998)
Total Expenditures, current prices
Social Expenditures, current prices
Educational Expenditures, current prices
Ratio of Public Expenditures to GDP, Czech Republic and EU27, 1998 – 2012 (in %)
EU27, average
Czech Republic