Public expenditure can have a very wholesome influence on the distribution of wealth in the community.

It can reduce inequalities of incomes. It is an admitted fact that the benefit to the poor from State activities is far greater than to the rich. A rich man can protect himself.

He can make arrangements for the education and medical relief of himself and his family.

But a poor man is helpless. It is, therefore, the poor man who benefits the most from the State activity. To this extent, the State expenditure seeks to bridge the gulf between the rich and the poor.


There is a certain expenditure which benefits the poor exclusively and primarily, e.g. poor relief, old-age pensions and unemployment and sickness benefits. The benefits derived from such social services by the poor may be regarded as a net addition to their incomes. And when we remember that the revenue is obtained by taxing the rich, the conclusion is inescapable that inequalities of wealth distribution have been reduced to some extent.

Corresponding to the principle of minimum sacrifice in taxation, there is the principle of maximum benefit in public expenditure. Public expenditure must be so arranged as to confer a maximum benefit on the community as a whole. This is the guiding principle. Judged in this light, we can see that expenditure on debt services is regressive, because it gives more income to the already rich. Granting of old-age pensions and benefits of social insurance are progressive. If a government subsidizes the production of commodities largely consumed by the poor, it is progressive otherwise regressive.

We have also to consider the reaction of public expenditure on individual income. If a government grant reduces the individual’s desire to work and save, it may lead to reduction of incomes of the beneficiaries. In this case, the inequalities of wealth distribution are not reduced. On the whole, public expenditure in modern times tends to make the distri­bution of wealth in the communes more equitable. Effects on Level of Income and Employment.

We have discussed abovethe effects of public expenditure on production and distribution. We have also noticed that in modern times the sphere of state activity has very much widened. As a result public expenditure on several new items has increased manifold.


This public expenditure affects the level of income and employment in the country. Keynes has shown that the govern­ment can remove widespread unemployment during periods of depression through liberal public expenditure on public works. In can thus raise the level of income and employment in the country.

Keynes showed that when government increases its investment expenditure on public works, then the increase in level of income and employment in the country will not be merely equal to increase in income and employment in those activities, but it will be many times more than this through what he has called the Income Multiplier. The value of this multiplier will depend on the marginal propensity to consume in the country. For instance, if the marginal propensity to consume is 2/3, the multiplier will be 3.

In this way, Keynes has shown that during depression the government can remove unemployment by increasing its public expenditure. Thus, public expenditure can vitally influence the level of national income and employment in the country and maintain economic stability by eliminating economic fluctuations.