Effects of Public Expenditure on Distribution
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Effects of Public Expenditure on Distribution

Effects of Public Expenditure on Distribution Public expenditure can have a very wholesome influence on the distribution of wealth in the community. It can reduce inequalities of incomes. It is an admitted fact that the benefit to the poor from State activities is far greater than to the rich. A rich man can protect himself.

Effects of Public Expenditure on Distribution

Public expenditure can have a very wholesome influence on the distribution of wealth in the community. It can reduce inequalities of incomes. It is an admitted fact that the benefit to the poor from State activities is far greater than to the rich. A rich man can protect himself. He can make arrangements for the education and medical relief of himself and his family. But a poor man is helpless. It is, therefore, the poor man who benefits the most from State activity. To this extent the Stale expenditure seeks to bridge the gulf between the rich and the poor.

There is a certain expenditure which benefits the poor exclusively and primarily, e.g., poor relief, old-age pensions and unemployment and sickness benefits. The benefits derived from such social services by the poor may be regarded as a net addition to their incomes. And when we remember that the revenue is obtained by taxing the rich, the conclusion is inescapable that inequalities of wealth distribution have been reduced to some extent.

But much depends, here again, on the character of public expenditure and the policy underlying it. Just as there are proportional, progressive and regressive taxes, in the same manner the government grants may also be proportional, progressive and regressive. If public expenditure is really to make the distribution of wealth more even and fair, it must be progressive. It must be according to 'ability to receive' (corresponding to 'ability to pay’ in taxation).

Corresponding to the principle of minimum sacrifice in taxation, there is the principle of maximum benefit in public expenditure. Public expenditure must be so arranged as to confer a maximum benefit on the community as a whole. This is the guiding principle. Judged in this light, we can see that expenditure on debt services is regressive because it gives more income to the already rich. Granting of old-age pensions and benefits of social insurance are progressive. If a government subsidizes the production of commodities largely consumed by the poor, it is progressive, otherwise regressive.

We have also to consider the reaction of public expenditure on individual incomes. If a government grant reduces the desire to work and save, it may lead to reduction of -incomes of the beneficiaries. In this case, the inequalities of wealth distribution are not reduced.

On the whole, public expenditure in modern times tends to make the distribution of wealth in the community more equitable.

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