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Determinants of Local and State spending Research Paper


Introduction

Governments are expanding each day because of the increasing number of functions that they have to carry out. Population growth rate of every country remains relatively high while mortality rates have reduced. As a result, services that people expect from governments are becoming more expensive each day. The numbers of people who depend on several social amenities offered by governments has been increasing over the years.

In this regard, governments have had to change their budgets now and again due to several factors. It is important to note that determinants of public expenditure are vital for any country for they influence the day-to-day activities of the government.

Demographic Determinants

As states industrialize, demand for different commodities change. People become picky making production of various commodities to be shifted in response to change in demand. It is important to note that this not only affects companies but also governments.

Demand for public governments changes as states become industrialized. Therefore, states have to adjust their expenditure accordingly (Raich 28). Federal government expenditure is also influenced by industrialization which shapes the aggregate demand.

Similarly, state and local governments cannot produce what its citizens are unable to afford. As the financial ability of people in a country improves, so does their demand (Burkerhead and Jerry 145). However, financial ability of people can only increase if there is economic growth.

In this regard, economic growth is very vital in determining governmental expenditure. On the other hand, as a country experiences economic growth, investments increase. This may be public or private investments. It is important to note that investments are diverse in various states and each state will have different needs.

Another demographic issue that influences state and local government spending is the age proportion. People in different age groups have different demands. States which have population composed majorly of old people will have different budgets compared to those which have many youths. Notably, as the age composition of a state or local government changes, steps have to be taken to change the budget.

On the same note, population growth is very essential in determining government expenditure (Gamkar 79). A large population means that there are many people who need services despite that fact that income of the government increases.

Educational institutions have to be expanded when population increases and so should other institutions including hospitals. In a nutshell, increase in population increases demand for goods and services thus increasing government expenditure.

Political Determinants

The politics of the day highly influence the kind of expenses that a government can incur. Each government whether democrat or republican makes various pledges to the electorate during their campaigns. The manifestos have in them various new things that the parties promise to fulfill if elected to office (Faulk, Michael and Michael J. 110).

Consequently, once in office each government strives to influence the type of expenditure at state and local levels. Moreover, investment projects that are initiated by different governments are relatively different. This means that capital purchases made are highly dependent on political leaders in place. As a result, government demand and expenditure is influenced.

Furthermore, there are instances when governments have to incur some expenses because they want to please the electorate. Taking for instance periods approaching elections, the government in power will always do everything to ensure that they are elected back to power.

As a result, the expenditure of government during this period will be different in different states given that people will explore various ways of pleasing people. Another facet of how politics influences state and local spending is by determining which activity should be done first.

It is the role of political leaders to determine which project is to be given priority and which one can wait (Luce and Anita 50). If the project that has been given priority requires massive capital investment then the expenses of the state will be huge. On the contrary, state expenditure will be lower if projects being executed are relatively cheap.

Economic Determinants

Usually, all governments wherever they are in the world will execute projects that they can afford. The budget of the government is planned taking into consideration the expected income during the financial year in question. As a result, economic conditions are very crucial in determining state and government expenditure.

During recessions and financial crises, government will cut down their expenditure because of the financial difficult. Some projects will have to be stalled to increase government savings. On the same note, money has to be diverted from other projects to cater for more important issues at that time (Rosen 136). The financial crisis of 2009 when money had to be spent to bail out banks is an example.

On the other hand, during boom seasons governments can afford to incur various expenses and their expenditure increases. Moreover, tax collection during seasons of economic stability is high. Consequently, state and local governments can easily increase their spending.

It is important to note here that people’s demand for government commodities is high during seasons of economic stability and these compels governments to increase their expenditure.

Institutional Determinants

Institutions are very crucial in any society. They are responsible for various functions in the community which cannot be assumed (Sexton 635). Moreover, institutions organize people and help the government in delivering some services to the community. In this regard, institutions have a substantial influence on what each government will spend on.

Institutions that provide supportive services to the community are usually not involved in income generating activities. Therefore, governments offer grants to these institutions to argument their expenses. In states where grants are more, governmental expenses are high.

Furthermore, institutions can be a source of income to the state or local government. Various institutions are involved in income generating activities. These institutions pay taxes to the government be it state or local government. The taxes are vital in enabling the government to offer services to people.

As a result, the higher the numbers of institutions present in a state the higher the expenditure of the state (Macdonald and Daniel 426). On the other hand institutions also deserve some services from the government are their presence in an area increases both state and local expenditure.

Institutions are also crucial in not only checking government expenditure but also limiting the budget at various levels. Tax limits that have been instituted in various states limit the extent to which government can go to collect money from people and companies.

It should be noted that indirectly, the tax limit curtails the expenditure of the states (Asher and Donald 12). On the same note, there is the limit on state and local expenditures. The line item veto of the governor put a ceiling on state expenditure. As a result, a state where the line item veto is implemented has regulated expenditure.

Emerging Issues

The world is first changing and so are the demands of people. Technological improvement has brought into the picture different factors that were not present there before. For this reason, technological requirements of each state are different and these highly influence the expenditure of each state.

On the same note, due to globalization that has lead to immigration, cultural variance has become substantial (Pryor 323). While cultural influence may not be very pronounced as regards state expenditure, they shape people’s demand. In this regard, culture is slowly becoming influential in governmental issues.

Conclusion

State and local expenditure are very crucial in running of day-to-day activities of the government. Notably, public expenditure is very important in spear heading economic growth and development. However, factors that influence expenditure in one state are not necessarily influential in other states. Political dynamics in various states influence what to be purchased or offered to be people in various states.

Economical ups and downs are also part of the crucial determinants of state and local expenditure. Nevertheless, economical issues are different in different regions. Sources of income vary from state to state and amount of income per state is different.

Therefore, the wealth of a state or local government is very influential on the expenditure of the government. Moreover, any issue that is capable of affecting state or local government taxation program directly influences government expenditure. In this regard, factors that influence state and local government expenditure are diverse but relatively related.

Works Cited

Asher, Herbert B. and Donald S. Van Meter. Determinants of Public Welfare Policies: A Casual Approach. Thousand Oaks: Sage Publishers, 1973. Print.

Burkhead, Jesse and Jerry Miner. Public Expenditure. Piscataway: Transaction Publishers, 2008. Print.

Faulk, Dagney, Michael Hicks and Michael J. Hicks. Local Government Consolidation in the United States. Amherst: Cambria Press, 2011. Print.

Gamkhar, Shama. Federal Intergovernmental Grants and The States: Managing Devolution. Northampton: Edward Elgar Publishing, 2002. Print.

Luce, Thomas F. and Anita A. Summers. Local Fiscal Issues in the Philadelphia Metropolitan area. Pennsylvania: University of Pennsylvania Press, 1987. Print.

McDonald, John F. and Daniel P. McMillen. Urban Economics and Real estate: Theory and Policy. Hoboken: John Wiley & Sons, 2010. Print.

Pryor, Frederic L. The Future of U.S. Capitalism. Cambridge: Cambridge University Press, 2002. Print.

Raich, Uri. Fiscal Determinants of Empowerment. New York: World Bank Publications, 2005. Print.

Rosen, Harvey S. Studies in State and Local Public Finance. Chicago: University of Chicago Press, 2007. Print.

Sexton, Robert L. Exploring Economics. Stanford: Cengage Learning, 2011. Print.

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IvyPanda. (2020, January 16). Determinants of Local and State spending. Retrieved from https://ivypanda.com/essays/determinants-of-local-and-state-spending/

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"Determinants of Local and State spending." IvyPanda, 16 Jan. 2020, ivypanda.com/essays/determinants-of-local-and-state-spending/.

1. IvyPanda. "Determinants of Local and State spending." January 16, 2020. https://ivypanda.com/essays/determinants-of-local-and-state-spending/.


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IvyPanda. "Determinants of Local and State spending." January 16, 2020. https://ivypanda.com/essays/determinants-of-local-and-state-spending/.

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IvyPanda. 2020. "Determinants of Local and State spending." January 16, 2020. https://ivypanda.com/essays/determinants-of-local-and-state-spending/.

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IvyPanda. (2020) 'Determinants of Local and State spending'. 16 January.

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