Question

Short answer type questions:
What is the basis of classifying government expenditure into 'Revenue Expenditure' and 'Capital Expenditure'? Which of these types of expenditure is payment of salaries to government employees and why?

Answer 1

Capital expenditure refers to the estimated expenditure in a fiscal year which creates assets for the government and causes reduction in liabilities for the government. For example: expenditure on lands and building, purchase of shares, expenditure on machinery and equipment.

Whereas, revenue expenditure refers to the estimated expenditure in a fiscal year which does not create assets for the government or reduction in liabilities. For example: wage bill of the government, interest payments, etc.

Payment of salaries to government employees is a revenue expenditure as it does not create any assets of the government.