Government Expenditure Theories – Current Spending vs Capital Spending – Does it matter what the money is spent on?
Government expenditure (like expenditure by private sector firms) can be categorised into either ‘current expenditure’ or ‘capital expenditure’. Current expenditure is recurring spending or, in other words, spending on items that are consumed and only last a limited period of time. They are items that are used up in the process of providing a good or service. In the case of the government, current expenditure would include wages and salaries and expenditure on consumables – stationery, drugs for health service, bandages and so on. By contrast, capital expenditure is spending on assets. It is the purchase of items that will last and will be used time and time again in the provision of a good or service. In the case of the government, examples would be the building of a new hospital, the purchase of new computer equipment or networks, building new roads and so on. The breakdown between these two types of spending is very important. Capital expenditure has a lasting impact on the economy
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