Classification of Public Expenditure

 1) CLASSIFICATION ON THE BASIS OF BENEFIT

Cohn and Plehn classified public expenditure on the basis of benefits into following 4 classes:-

A) EXPENDITURE CREATING BENEFIT FOR ALL- This includes expenditure on those items which create benefit to all type of people in the community, such as expenditure on defence, civil administration, education etc.

B) EXPENDITURE CREATING BENEFIT FOR CERTAIN PEOPLE- It includes expenditure incurred to create benefit to a particular type of people or certain class. The money spent on poor relief fund is an example.

C) EXPENDITURE CREATING A SPECIAL BENEFIT TO SOME BUT IS A BENEFIT FOR ALL- These include expenditure on the administration of justice and maintenance of law. It will be beneficial for the entire society.

D) EXPENDITURE CREATING BENEFIT FOR A PARTICULAR GROUP OR GROUPS- The expenditure incurred for the benefit of particular individuals comes in this category. The production subsidy granted by the government to a particular type of industry is an example.

2) CLASSIFICATION ACC TO THE QUANTUM OF REVENUE RECEIVED BY THE GOVERNMENT

F.S. NICHOLSON  classified public expenditure on the basis of the quantum of revenue that a particular class gives to the government. This classification seeks to establish the separation between public expenditure for productive and non-productive purposes. These are:-

A) EXPENDITURE GIVING FULL RETURN AND EVEN PROFIT- Expenditure on post offices, gas service, transportation and rails, and industries in general, falls in this category.

B) EXPENDITURE WITHOUT DIRECT RETURN OF REVENUE- Expenditure incurred on such 'heads' does not command any return of revenue. It adds merely to the day to day expenditure. It is also called non-productive expenditure. example is expenditure on Poor Relief.

C) EXPENDITURE WITH INDIRECT RETURN OF REVENUE- Such expenditure is not directly productive. For eg., the expenditure on education indirectly benefits the revenue, since an educated individual is less expensive and more helpful and better taxpayer in comparison to an uneducated person. 

D) EXPENDITURE WITH DIRECT PARTIAL RETURN- The education for which the state charges fee is partially helpful to revenue. Subsidised services on which the consumer pays only a small portion in comparison to the cost of service he enjoys falls in this category. 

3) SMITH'S CLASSIFICATION ON THE BASIS OF FUNCTIONS OF THE STATE

Adam Smith classifiede public expenditure on the basis of the type of the functions performed by the state. They are:-

A) PROTECTIVE FUNCTIONS- This includes functions needed to secure law and order within the state and removal of any fear of external aggression. The expenditure on police, defence and courts falls under this category.

B) DEVELOPMENT FUNCTIONS- This includes the functions which seek development and prosperity of the economy. They are performed in order to raise the national income and thereby improve the standard of living of the people. The expenditure to promote social welfare is also included in this category.

C) COMMERCIAL OR BUSINESS FUNCTIONS- The functions which aim at earning some revenue are called commercial or business functions of the state. Such functions aim to promote the level of commerce and industry.

4) MILL'S CLASSIFICATION

J.M. Mill classified public expenditure in the following two categories:-

A) OPTIONAL- The expenditure on the heads which are not necessary for the state to perform is optional expenditure. The necessity of the function and the availability of resources would determine the amount of expenditure.

B) COMPULSORY- The expenditure on compulsory functions do not lie within the field of the choice of the government, and the government has no alternative but to incur this type of expenditure.

5) DALTON'S CLASSIFICATION

Hugh Dalton classified public expenditure into two classes:-

A) GRANTS- Payments of oldage pensions or contributions out of general revenue to scheme of social insurance are grants. When Government spends money on grants, it does not get anything in return.

B) PURCHASE PRICES- Payments by a public authority to any of its employees by way of salary and wages, or to contractors, whom it employs, are Purchase Prices. If Government spends money Then it gets some services in return.

6) ROSCHER'S CLASSIFICATION

Roscher classified public expenditure in 3 categories:- 

A) NECESSARY- It is the type of expenditure which cannot be postponed, avoided or neglected by the state. Such expenditures aree necessary for the very existence of the state.

B) USEFUL- It is another type of expenditure though not necessary but useful for the individuals of the state. It is in the interest of the people and aims at their betterment.

C) SUPERFLOUS OR ORNAMENTAL- These are unnecessary expenditures.

7) SHIRRAS' CLASSIFICATION

Findlay Shirras classified public expenditure as-

A) PRIMARY EXPENDITURE- It is incurred on those functions of the state which ought to be undertaken by the government. This includes expenditure on defence, justice, law and order, and security against external aggression.

B) SECONDFARY EXPENDITURE- It includes expenditure on:-

        i) Public education

        ii) Sanitation and Health

       iii) Poor relief

       iv) Removal of unemplyment and underemployment

       v) Famine and flood relief

       vi) Railways, roads, air and seaways

        vii) Post and telegraph services

       viii) Industrial and agricultural research and subsidy paid.

8) PIGOU'S CLASSIFICATION

Prof. Pigou classified public expenditure into two heads:-

A) EXPENDITURE THYAT PURCHASES CURRENT SERVICES OR PRODUCTIVE RESOURCES FOR THE USE OF THE AUTHORITIES OR NON-TRANSFERABLE EXPENDITURE- This includes

          i) Defence

          ii) Civil administaration

          iii) Education

          iv) Law, order and justice

          v) Health

B) EXPENDITURE OF EXISTING PROPERTY RIGHTS TO PRIVATE PERSON OR TRANSFEREBLE EXPENDITURE- This includes

          i) Payment of interest on the public borrowings

          ii) Transfer payments

          iii) Sickness benefit

           iv) Production subsidies provided to some particular types of industries

9) J.K. MEHTA'S CLASSIFICATION

Prof. J.K. Mehta classified public expenditure into following two categories:-

A) CONSTANT EXPENDITURE- It is that amount of which does not depend upon the extent of the use by the people, in whose interest it is incurred, made of the services that are financed by it. The expenditure on defence is a clear example of this class. Such expenditure is incurred irrespective of the number of the people using the services and hence the people have no influence upon the amount that government decides to spend.

B) VARIABLE EXPENDITURE- It is that which increases with every increase in the use of public services by the people for whose benefit it is incurred. The money spent by the government on the postal services is an example.

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