Effects of Public Expenditure on Distribution of Resources

Effects of Public expenditure on Distribution of Resources in between Different Uses and Different Regions: The government influences the distribution of various resources among different industries and trades and different regions through public expenditure in the following ways-

 (i) Expenditure on Public Sector: A large amount of public expenditure is spent on the expansion of public sector and its proper functioning. Many strategic and essential industries like railway, road-transport, telephone, post and telegraphs and many other industries of vital importance from national point of view, have been owned and run by the government in almost all the countries of the world. The operations of these Industries and many others in the public sector have tended to increase production. Effects of public expenditure on distribution and production will be discussed in future in detail.

 (ii) Inducement to Private Sector: Other effects of public expenditure on distribution is Public expenditure also increases the production in to the private sector. The government spends major part of its expenditure on creating basic infrastructure like building up of roads, dams. Railways, providing electricity, water etc; or on subsidies to private industries or for the supply of basic raw materials, equipment and other technical services at moderate rates. This, definitely gives an incentive to private entrepreneurs to Produce more If the government wishes to attract productive resources to a particular industry, it starts giving financial assistance to such an industry from its own funds.

 (iii) Effective Demand: Through public expenditure, government induces the buyer to buy more of goods. Deficiency of demand is great hurdle in the industrial development of the country. The government gives assistance to those who wish to spend in order to increase the effective demand of the goods in the market which would in turn, increases the production.

 (iv) Effects Public Expenditure on Distribution of Resources under Regions ( Regional Distribution) : The public, expenditure also helps in the redistribution of national resources from one region to another or from one industry to another. When government wants to develop the backward region or a particular industry, it provides or offers special facilities in the form of tax concessions, grants in aid, accommodation, concessional supply of raw materials and basic infrastructure etc for the establishment of new industrial units in that particular region or industry.

The resources are thus, transferred from less profitable area to more profitable area. As a result new industrial units came into being and the resources available in that area are used more intensively, leading to increase in production. Thus, with the help of public expenditure, Industrial development in less industrially developed areas is possible and regional imbalances are mitigated.

 From the above discussion on Effects of Public expenditure on Distribution of Resources; it follows that public expenditure generally leads to Increases in production but, if carefully planned. If planning and its execution are defective, a great deal of public expenditure will go waste. In such cases, production will be below expectation. Learn The effect of public expenditure on production and distribution