Public Expenditure

Abstract

The subject-matter of public finance is: (i) public expenditure on provision of goods, services and state benefits; (ii) government revenue, the chief source of which is taxation; (iii) public borrowing and the national debt. William Ewart Gladstone (1809–98), one of Britain's great Chancellors of the Exchequer, declared that ‘expenditure depends on policy’. It also depends on resources, which include tax revenue and the proceeds of borrowing. Public finance reflects historical events and gives rise to actions that change the course of history. In seventeenth-century England, King Charles I quarrelled with Parliament over revenues to finance his expenditure. The King lost and was beheaded after the country was plunged into a civil war. King Louis XVI of France (1754–1793) met with a similar end. The French Revolution, which resulted in the overthrow of the monarchy, was fuelled by resentment of an unjust system of taxation. King George III lost some of the British colonies, partly because his American subjects objected to taxation without representation in general and to changes in import taxes on tea in particular. The failure of fiscal and monetary policies to contain inflation in Germany, when between July and November 1923 prices rose over 7 million times, brought the collapse of the economy, creating instability and resentment which paved the way for Hitler's rise to power.