How do you explain the role of
public expenditure in achieving
higher economic growth?

Explanation:

heritage.org

Beware the Value-Added Tax

Daniel J Mitchell

Backgrounder, 1852

America is one of the few nations without a value-added tax (VAT), but there is growing pressure to impose the levy. In simple terms, a VAT is a type of national sales tax. However, instead of being collected at the cash register, it is imposed on the “value added” at each stage of the production process.

Some like the VAT because it offers a new way to finance bigger government. Others like the VAT because—at least compared to the income tax—it does not impose as much damage on the economy. Some want to use the revenues from a VAT to facilitate tax reform and/or Social Security reform. There are even some people who believe that a VAT will somehow reduce the trade deficit.

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researchgate.net

The impact of government spending on economic growth

Daniel J Mitchell

The Heritage Foundation 1813, 1-18, 2005

A growing government is contrary to America’s economic interests because the various methods of financing government—taxes, borrowing, and printing money—have harmful effects. This is also true because government spending by its very nature is often economically destructive, regardless of how it is financed. The many reasons for the negative relationship between the size of government and economic growth include:

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Cited by 222

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citeseerx.ist.psu.edu

Government expenditure and economic growth in Nigeria, 1970-2008: A disaggregated analysis

Abu Nurudeen, Abdullahi Usman

Business and economics journal 2010 (4), 1-11, 2010

The paper observes that rising government expenditure has not translated to meaningful development as Nigeria still ranks among world’s poorest countries. In an attempt to investigate the effect of government expenditure on economic growth, we employed a disaggregated analysis. The results reveal that government total capital expenditure (TCAP), total recurrent expenditures (TREC), and government expenditure on education (EDU) have negative effect on economic growth. On the contrary, rising government expenditure on transport and communication (TRACO), and health (HEA) results to an increase in economic growth. The authors’ recommendations include among others the following. Government should increase both capital expenditure and recurrent expenditure, including expenditures on education, as well as ensuring that funds meant for the development of these sectors are properly managed. Secondly, government should increase its investment in the development of transport and communication, in order to create an enabling environment for business to strive. Thirdly, government should raise its expenditure in the development of the health sector since it would enhance labour productivity and economic growth. Lastly, government should encourage and increase the funding of anti-corruption agencies in order to tackle the high level of corruption found in public office.

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