Answer to Question #149191 in Economics of Enterprise for Zayar

Question

From 1993 to 2014, public expenditure as a proportion of GDP rose from 35% to around 42% in Japan, but fell from over 55% to below 50% in Italy.
Discuss possible reasons for an increase in the level of public expenditure as a proportion of GDP in an economy
Evaluate the likely economics effects of a reduction in the level of public expenditure as a proportion of GDP in Italy or another country of your choice.

Answer 1

- Public expenditures of an economy might increase due to a growth in a state's functions, an increase in national wealth, increased abilities to tax, provisions of the public utility services and expansions in social services among others.

- By reducing the levels of public expenditures, there will be reduced annual government borrowings in return, which also helps in reducing the total public sector debts. Additionally, spending cuts results to lower growth that leads to reduced tax revenues, as well as, higher spending on economic benefits.