Question

What is meant by public expenditure? How does the government generate revenue to finance them?

Answer 1

Instruction:
Explain the different types of public expenditure and public revenue.

Solution:

Public expenditure includes the expenses of the government for developmental areas like education, healthcare and infrastructure, and non-developmental expenses like defence, administrations, interest on loans and social welfare schemes.

Revenue through these expenses is covered through taxes and non-tax resources. Taxes could be direct or indirect, whereas non-taxes include revenue from fees, fines, penalties, interest on loans given to states and profits earned through public sector companies.

If the expenses are more than the revenues then the government may be required to take loans or public debt. It can take debt through internal sources like the RBI or external sources like foreign countries or international organisations like the World bank and the IMF.