It is important for us to know the types of government expenditures, because as the citizens of our country, we have a right to know how the money we pay as taxes is being spent by the government. There are usually two types of government expenditures. These government expenditures are either directed towards purchase of a part of the gross domestic product that an economy produces, which is known as government purchases, or towards members of other sectors of the economy as gifts, which is known as transfer payments. Both transfer payments and government purchases affect the macro-economy of a country in a major way. These types of government expenditures can either trigger instability in business cycles, or can be used to address problems of inflation and unemployment, which are caused due to this instability. TypesOf.com’ analyses these types of government expenditures in detail.
* Government Purchases: The government purchases ten to fifteen percent of the final goods and services produced by an economy annually. These final good and services produced by an economy in one year are known as gross domestic product of that economy. The government purchases these goods and services to fulfill some of its functions. For example, a fighter jet can be assumed to be a final good produced in an economy. So, when the government buys a set amount of fighter jets produced, it uses them for defense purposes of the country. Similarly, the services of a health inspector (which are produces as final services within an economy) would be used in order to prevent outbreak of diseases. Thus, the part of the gross domestic product bought by the government is invested back into benefiting the country in major ways.
* Transfer Payments: Transfer payments are the payments made by the government to various sectors of an economy, without an expectation of direct production. However, such transfer payments are meant to be beneficial to various sectors of an economy. Transfer payments take the form of financial aid, which is more popularly known as welfare, subsidies that government provides to certain firms, social security, among others. The financial aid or welfare is usually provided to people below the poverty line, as an attempt to reduce the gap between economic sections of the society by uplifting the poor. As an example of subsidies provided by the government, we could talk about farmers getting pesticides on subsidized rates. There is no guarantee that a harvest will be good if pesticides are available at subsidized rates, but the subsidy is supposed to help and encourage farmers to adopt new methods of farming, and indirectly promote a better production. Social security is a measure taken by the government in order to ensure that all sections of the society have the basic amenities of food and shelter. There is no direct benefit for the government in providing social security.
The above mentioned are the types of government expenditures that exist today, and these government expenditures are directed towards an overall the benefit of an economy.