Various Classes of Public Expenditure | Classification of Public Expenditure

Different economists have classified public expenditure according to their own ideas about the suitability or importance of the base. The main bases of classification of public expenditure are as follows:-

(1)    Classification on the Basis of Benefit: 

Since the expenditure is incurred by the state with the objective of conferring benefit on the society, it can be classified on the basis of quantity of benefits which it confers on the various sections of the society. German writers such as Prof. Cohn and American writers such as Plehn have classified the public expenditure on the basis of benefit into four classes :

(i)      Public expenditure benefiting the entire society, e.g., the expenditure on general administration, defence, education, public health, transport etc.

(ii)    Public expenditure conferring a special benefit on certain people and at the same time common benefit on the entire community, e.g. poor administration of justice etc.

(iii)   Public expenditure directly benefiting particular group of persons and indirectly the entire society, e.g. social security, poor relief, public welfare, pension, unemployment relief etc.

(iv)  Public expenditure conferring a special benefit on some individuals, e.g., subsidy granted to a particular industry.

(2)    Classification on the Basis of Revenue: 

Prof. F.S. Nicholson classified public expenditure on the basis of amount of revenue obtained by the state in return for the services rendered. His classification is given below :-

(i)      Expenditure with direct return of revenue, e.g. poor relief as well as direct toll on wars.

(ii)    Expenditure without direct return, e.g. expenditure on education.

(iii)   Expenditure with partial direct return, e.g. subsidised railway services, education for which fees are charged etc.

(iv)  Expenditure with full return on event profit, e.g. gas service, post-office, public enterprises etc.

(3)    Classification on the Basis of Function :

Prof. Adam Smith classified public expenditure on the basis of functions of government in the following main groups  :-

(i)      Protection Functions: This group includes public expenditure incurred on the security of the citizens, to provide them with justice and counteract and external invasion and internal disorder, e.g., defence, police, courts etc.

(ii)    Commercial Functions: This group includes public expenditure incurred on the development of trade and commerce, e.g., development of means of transport and communication, public enterprises etc.

(iii)   Development Functions: This group includes public expenditure incurred for the development of citizens and country, e.g., education, public recreation etc.

(4)    Classification on the Basis of Importance: 

G. Findlay Shirras has classified public expenditure into two following groups:

(i)      Primary Expenditure: It includes all expenditure which must be incurred by every state, e.g., defence, maintenance of low and order, civil administration, payment of debts etc.

(ii)    Secondary Expenditure: It includes public expenditure on the remaining items, e.g., social expenditure, education, public health, poor relief, unemployment insurance etc.

(5)    Classification on the Basis of Necessary, Useful and Superfluous: 

Rosher classified public expenditure into following three groups:

(i)      Necessary Public Expenditure: It includes public expenditure which the state has to incur and which cannot be postponed.

(ii)    Useful Public Expenditure: It is that public expenditure which is desirable but can be postponed.

(iii)   Superfluous Public Expenditure: It is that public expenditure which the state may or may not incur.

(6)    Classification on the Basis of Productive and Unproductive: 

Prof. Robinson classified public expenditure under the following two heads:

(i)      Productive Public Expenditure: Productive public expenditure is that which directly or indirectly develops natural and human resources and increases national income.

(ii)    Unproductive Public Expenditure: Unproductive public expenditure is that which does not result in any rise of national income, e.g. expenditure on war.

(7)    Classification on the Basis of Transferability: 

Prof. Pigou classified public expenditure into following two  groups:

(i)      Transferable Public Expenditure: An expenditure is said to be transferable when it takes the form of payment of money to people either gratuitously or in purchase of existing property rights.

(ii)    Non-transferable Public Expenditure: An expenditure is said to be non-transferable public expenditure when it is incurred to purchase current services of the resources of the nation.

(8)    Classification on the Basis of Constant and Variable Expenditure:

Prof. J.K. Mehta classified public expenditure into the following two groups:

(i)      Constant Expenditure: The constant expenditure is that amount which does not depend upon the services that are financed by it. The expenditure on defence is a clear example of the group of expenditure.

(ii)    Variable Expenditure: Variable expenditure is that which increases with every increase in the uses of public services by the people for whose benefit it is incurred. Expenditure on postal service is an example of variable expenditure.