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EKN Lecture Notes - Chapter 7
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EKN Lecture Notes - Chapter 7
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EKN NotesThe economic classification identifies the type of expenditure incurred, for example,
salaries, goods and services, transfer and interest payments, or capital spending.
The functional classification categorises expenditure according to the purposes and
objectives for which they are intended. (various departments performing their
functions)
Reasons for growth in government
MACRO MODELS MICRO MODELS
Wager & stages-of-development Baumol
Adolph wager, Musgrave and William Baumol developed a model of
Rostow unbalanced productivity growth to explain
explain how government expenditure the growth in gov. expenditure.
tends to increase when a country Economy is divided into 2 broad sectors:
develops from a o A progressive sector
subsistence/traditional economy to Characterised by
an industrialised economy. technologically progressive
activities e.g. innovation which
First Stage contribute to a rise in the level
Wagner = need for gov. to maintain of output.
internal & external law and order There is a cumulative increase
during first stage. Critical legal and in the productivity of
administrative institutions have to cut employees
the costs Labour is only one of the
Stages-of-development = requires inputs in production process
gov. to get investment o A non-progressive sector
Only permit sporadic changes
Middle stage in productivity
Stages-of-development = continue Labour is often the end
to supply investment goods while product
private investment starts to take
off as a result of the positive Summary = unbalanced productivity growth
pecuniary external effects of gov.
investment in 1st stage. Private
investment may cause certain
market failures.
Last stage
Expenditure by gov. decreases due
to most infrastructures are already in
place
Rural areas are still in 1st stage due
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