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Difficulty: EasyPublic Expenditure Classification and Growth

Which of the following items of public spending is correctly classified as capital expenditure?

  1. Building a new dual-carriageway interstate road networkAnswer
  2. B
    Payment of monthly salaries and wages to civil servants
  3. C
    Servicing interest payments on existing national debt
  4. D
    Disbursement of monthly pension benefits to retired workers

Answer

Building a new dual-carriageway interstate road network
Government expenditure on constructing durable physical assets like roads, bridges, railways, and hospitals represents capital expenditure because it directly expands social overhead infrastructure and enhances economic productivity over extended periods.

Step-by-Step Solution

1
Define the nature of public capital expenditure
Capital expenditure consists of government payments made toward acquiring, constructing, or improving long-term physical assets and infrastructure.
Clear distinction is required between investments in tangible growth assets and regular operational spending.
2
Evaluate each spending item against the capital expenditure criteria
Road network construction yields a lasting, multi-year asset that adds to economic infrastructure, whereas salaries, debt interest, and pensions are short-term operational or transfer expenditures.
Items supporting ongoing operations or routine administration belong strictly to recurrent expenditure.

Key Concept

Classification of Public Expenditure into Capital vs. Recurrent Outlays
Estimated Time:45s
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Topics

Public Expenditure Classification and Growth

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