Principles of Public Expenditure:

Just as there are well-known principles or canons of taxation, similarly it is possible to formulate some principles to which prudent public expenditure should conform.

These principles are:

1. Principle of Maximum Social Benefit:


It is necessary that all public expenditure should satisfy one fundamental test, viz., that of Maximum Social Advantage. That is, the government should discover and maintain an optimum level of public expenditure by balancing social benefits and social costs. Every rupee spent by a government must have as its aim the promotion of the maximum welfare of the society as a whole.

Care has to be taken that public funds are not utilized for the benefit of a particular group or a section of society. The aim is the general welfare. Government exists for the benefit of the governed and the justification of the government expendi­ture is, therefore, to be sought in the benefit of the community as a whole.

2. Canon of Economy:

Although the aim of public expenditure is to maximize the social benefit, yet it does not exonerate government from exercising utmost economy in its expen­diture. Economy does not mean niggardliness. It only means that extra vagance and waste of all types should be avoided. Public expenditure has great poten­tially for public good but it may also prove injurious and wasteful. Thus, if revenue collected from the tax payer is heedlessly spent, it would be obviously uneconomical.


To satisfy the canon of economy, it will be necessary to avoid all duplication of expenditure and over-lappying of authorities. Further, public expenditure should not adversely affect saving. In case government activity damaged the individual’s will or power to save, it would go against the canon of economy.

3. Canon of Sanction:

Another important principle of public expenditnciple of public expenditure is that before it is actually incurred it should be sanctioned by a competent authority. Unauthorised spending is bound to lead to extravagance and over­spending. It also means that the amount must be spent on the purpose for which it was sanctioned.

Allied to the canon of sanction, there is another viz., auditing. Not only is previous sanction of public expenditure essential but apost-mordem examination is equally imperative. That is, all the public accounts at the end of the year should be properly audited to see that the amounts have not been misspent or misappropriated.


4. Canon of Elasticity:

Another sane principle of public expenditure is that it should be fairly elastic. It should be possible for public authority to vary the expenditure according to need or circumstances. A rigid level of expenditure may prove a source of trouble and embarrassment in bad times. Alteration in the upward direction in not difficult.

It is easy, rather tempting, to increase the scale of expenditure. But elasticity is needed tempting, to increase the scale of expen­diture. But elasticity is needed most in the downward direction. When the economy axe is applied it is a very painful process. Retrenchment of a wide­spread character creates serious social discontent.

It is very necessary, therefore, that when the scale of public expenditure had to be increased, it should be increased gradually. A short spell of prosperity should not lead to long-term commitments. A fair degree of elasticity is essen­tial if financial breakdown is to be avoided at a time of shrinking revenue.

5. No Adverse Influence on Production or Distribution:

It is also necessary to ensure that public expenditure should exercise a healthy influence both on production and distribution of wealth in the community. It should stimulate productive activity so that income and employ­ment of the living. But this object of raising of living standards of the masses will be served only if wealth is evenly distributed. If newly created wealth goes to enrich the already rich, the purpose is not served. Public expenditure should aim at reducing the inequalities of wealth distribution.

6. Principle of Surplus:

It is considered a sound or orthodox principle of public expenditure that as far as possible public expenditure should be kept well within the revenue of the State so that a surplus is left at the end of the year. In other words, the govern­ment should avoid deficit budget, But the modern economists, especially Keynes, do not regard surplus budgeting as a virtue, rather deficit budgeting is more useful in raising the levels of income and employment in the under­developed countries. All the same, budget deficits running over a series of years are considered bad for the financial stability of the country and they cause inflation which is injurious to the health of the economy.