Positive And Negative Implications Of Government Spending

1223 Words5 Pages
3.0 IMPLICATIONS OF GOVERNMENT SPENDING Government spending or also known as government expenditure has both positive and negative implications. There are some arguments related to the relationship between government spending and economic growth. Economic growth consist of Gross Domestic Product (GDP), interest rates, supply and demand of economy and inflation. According to Hasnul, A.G. (2015), Wagner’s law suggested that government expenditure increase because of the economic growth. According Hasnul, A.G. (2015) , in contrast, Keynesian hypothesis state that expansion of government expenditure accelerates economic growth. 3.1 BENEFITS OF GOVERNMENT SPENDING Government spending has been allocated to many components such as welfare benefits, pension spending, education training, infrastructure investment and higher debt interest payments. However, the benefits of government spending that will be discussed are increase in GDP, national welfare benefits and income effect of higher taxes. 3.1.1 INCREASE IN GROSS DOMESTIC PRODUCT (GDP) Gross domestic product (GDP) is one of the main indicator used to measure the output of a country. As mentioned there are two different arguments. According to Govindaraju, Rao and Anwar (2011), Wagner’s Law suggests that there is a long-run equilibrium relationship between public spending and GDP. However, referring to Govindaraju, Rao and Anwar (2011), Keynesians view government expenditure as an exogenous policy instrument that influences

More about Positive And Negative Implications Of Government Spending

Open Document