Essay On Government Spending

The issue the paper is to study and analyze is what impact government spending has on the poverty rate in a country. This exercise is important and worthy of research because public spending may increase economic growth and employment. Many studies show that government spending is completely related with both. This project benefits the field as a whole because it affects the economy of a country. The question I hope to answer in the paper is does government spending have a correlating impact of the poverty rate of a country and is it positive or negative one.

Government spending plays an important role in poverty reduction. In economics according to the Keynesian approach, public spending may increase the aggregate demand which additionally fuels the economic growth and employment. While increase in government spending may leads to fiscal deficit, if the government decreased their spending it may adversely affect the economy. Fiscal deficit can be dangerous to welfare for numerous reasons including, it can lead to wasteful distribution of resources. Numerous studies have found out that there exists a major statistical connection between fiscal deficit and a lot of macroeconomic variables. Increase in fiscal deficit is harmful for the economy. It may cause high price increases, and crowding out of consumption in the long run. This causes poverty to increase and decrease the welfare in the economy. The financing of fiscal deficit generates harsh problem for poverty decrease. In most of the developing countries, fiscal deficit is financed through borrowing. The internal borrowing affects the interest rate in the long run. While external borrowing causes account deficit which decreases the net export of the country. Although high fi...

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...asing the development spending which negatively affect the productivity and economic competence of a country. While on the other hand government expenditure or spending and proper source of financing, particular subsidies are helpful and efficient. It can increase the private investment, job opportunities, human capital through education and health expenditure and reduces poverty. So the actual matter of concern is the work of government spending. Usually the increase in public expenditure causes fiscal deficit which disfigure the economy. Governments take different measure to reduce fiscal imbalances like cut in development expenditure, subsidies and social spending which affects the welfare. If the reduction in fiscal deficit is a matter of concern then the government can reduce fiscal deficit by increasing productivity and growth rather hen reducing expenditure.