CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
In all most all economics today government intervention in undertaking fundamental roles of allocation, stabilization, distribution and regulation, especially where or when market proves inefficient or its outcome is socially unacceptable. Government also intervenes, particularly in developing economics to achieve macroeconomics objective such as economic growth and development, full employment, price stability and poverty reduction.(AESS PUBLICATION 2011).
Public finance is to provide information to all arms of government in other to provide use full data as done for the develop nations that transferred public finance technology to developing nation. Public finance is used for allocation, stabilization and distribution (Musgrave and Musgrave 1989).
Public finance is the study of the principle underlying the spending and raising of funds by public authorities (shirras, 1969). It is the field of economics that studies government activities and alternative means of financing expenditure (hymann 1993))
It is a fact that no society though out history has ever attained a high level of economic affluence without a government. Where government do not exist anarchy reigned and little wealth was accumulated by productive economy activity. After government took hold the rule of law and the establishment of private property right often contributed and it has similarly impacted on their societies as well.
Economic growth represents the expansion of a country GDP or outputs. Growth means an increase in economic activities.
Todaro (1995) Citing Kuznets defined a country economic growth as a long term rise in capacity to supply increasing diverse economic goods to is population, this growth capacity based on advancing technology and the institutional and ideological adjustment that is demand. The board objective of this project is the role of government expenditure in economic growth.
Government is necessary through by no means sufficient condition for prosperity it is also a facts, however, that where government have monopolized the allocation of resources and other economic decisions, societies have been successful in attaining
relatively high level of economic affluence. Economic progress is limited both when it is at or near 100%. The experience of the old Soviet Union is revealing as well the comparison of east and West Germany during the cold war era or of north and South Korea today.
In the Nigeria context, the public sectors consist of the federal government, state government and local government. The second national development, just as it considered public enterprise as crucial to growth and self reliance due to capital scarcity, structural defects in the private sector. Third nation’s development plan(1975-1980) advocated some shift in resources allocation in favors of rural areas which were said to have benefited little from the economic growth of the 1970’s.
Thus smaller farmer and the rural population were expected to benefit from public expenditure.
During the first nation rolling plan (1989-1991), government aimed at effort to combat inflation, hence large budgetary deficits were to be made more avoided. Government expenditures were to be made more cost effective and kept at level that were consistent with
the nations resources realistic growth target and general economic stability
The major instruments by which the government can ensure an effective growth in economic activities are;
i. Expenditure that induce the firm or workers to produce certain goods and services.
ii. Taxes that reduce private consumption or investment and thereby free resource for public expenditure.
iii. Regulation and controls that direct people performance or desist for economic growth to attain economic growth.
These objectives are summarized as;
a. Provision of infrastructural facilities such as good roads, light, water, transport and communication facilities etc in both urban and rural area with the view to adequate support to the productive sector and enhancing private sector participation on the various sectors of the economy.
b. Streamlining public expenditure to give priority to the completion of the initial ongoing viable project.
Direct expenditure is that incurred in an establishment of economically viable commercial enterprises such as iron and steel complex, oil and gas refineries etc.
Government expenditure in addition to raising the level of economic growth also influences the pattern of production and the component of output.
Generally government expenditure is classified into two which are by current expenditure which involves all expenditure by government for maintenance of existing or new institutions and services, they are salaries, wages of public offers and fringe benefits and expenses for servicing activities which involves administration, defense and other social services like education, health and pension schemes.
The other one is capital expenditure this are the cost of bringing into existence new institutions, services and project. It is simply all government expenses on building road, factories, schools, and equipment requirement for providing social and economic services.