Answer to Question #130620 in Macroeconomics for Kone mulalo

Question

Government spending (as a percentage of gross domestic expenditure) has
increased significantly over the past decades. Explain any two reasons for this trend.

Answer 1

Solution:

The reasons for the increase in Government spending as a percentage of gross domestic expenditure over the past decades are explained below:

1.     The rising cost of public services and higher price levels – The increased demand of public goods and services due to population increases, which has further led to an increase in prices for the same, has, therefore, resulted to Governments spending even more in order to sustain and meet the increased demand levels.

2.     Increase in ability to tax – Most Governments have been able to broaden their tax base, which has led to a significant increase in taxes collected. With this increase in taxes collected, it has allowed Governments to have more funds and hence increase their spending to cater for economic development and expansion of social services provisions.