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What Is Public Expenditure?

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  • Written By: K. Kinsella
  • Edited By: Allegra J. Lingo
  • Last Modified Date: 16 July 2014
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Public expenditure occurs when a government spends money to pay for services that benefit the community as a whole. In order to fund public expenditure, national and municipal governments must first raise money from the public. Government officials determine how best to spend the funds and attempt to ensure that public expenses do not exceed the spending budget. Most governments release annual budgets detailing public spending plans.

Funds for public expenditure are primarily raised through taxation. Governments levy income taxes, property taxes, and sales taxes on private citizens and businesses, and set tax rates so that sufficient funds can be raised to cover planned expenditure. Sometimes, governments need to raise funds very quickly, in which case bonds are sold to investors and the bond proceeds fund the public expenditure. Governments then use future tax revenues to pay back the bond holders.

National governments use public funds to pay for national defense. In many countries, military spending is one of the largest public expenses. National governments also use tax revenues to establish foreign embassies and send diplomats overseas. Costs related to the day-to-day operations of the government are also paid for with public funds.

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Schools are paid for with public funds, and in some countries the national government covers these costs, whereas in other places municipal authorities raise taxes to cover education costs. The core funding of higher education establishments comes from public expenditure, although the bulk of university money often comes from tuition fees. Aside from basic educational costs, many governments use publicly raised money to pay for classes for children with special needs. Costs related to extra-curricular activities are often put under close scrutiny when governments have budget shortfalls, and consequently such programs are often eliminated during recessionary periods.

Governments normally pay for roads and rail networks with public funds. Before major construction projects related to transportation are undertaken, the public normally have an opportunity to vote in support of the project or veto projects that will cause taxes to rise. Some governments also use public funds to subsidize forms of transport not paid for with government funds in order to encourage citizens to use mass transportation and reduce carbon emissions.

Fiscally conservative politicians attempt to reduce public expenditure, which enables them to cut taxes. Other politicians attempt to increase tax revenues in order to increase and improve the services available to ordinary citizens. Consequently, public expenditure levels tend to change whenever an election causes a new politician or political party to come to power.

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