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Difficulty: EasyPublic Expenditure Classification and Growth

Government disbursements made directly to citizens, such as old-age pensions and disaster relief grants, without any corresponding exchange of goods or services, are classified as which category of public expenditure?

  1. Transfer paymentsAnswer
  2. B
    Capital expenditure
  3. C
    Developmental expenditure
  4. D
    Productive recurrent expenditure

Answer

Government disbursements made directly to citizens without any corresponding exchange of goods or services are classified as transfer payments.
Transfer payments refer to government outlays for which no current goods or productive services are rendered in return. Common examples include social security payments, pensions, and hardship relief grants.

Step-by-Step Solution

1
Analyze the nature of the government spending mentioned in the scenario.
The spending involves financial outlays directly provided to individuals without requiring productive work or goods in return.
Public expenditure categories are defined by whether the government receives tangible assets, productive services, or simply redistributes funds.
2
Match these characteristics to standard public finance definitions.
Unilateral disbursements such as pensions and social benefits are classified as transfer payments.
By definition, transfer payments are unilateral financial transfers designed to redistribute income across groups in society.

Key Concept

Transfer Payments in Public Expenditure Classification
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Topics

Public Expenditure Classification and Growth

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