Q.State with reasons whether you agree or disagree with the following statement:
Public expenditure includes only revenue expenditure.

The correct answer is Maintaining internal law and order.

Public expenditure is often classified into obligatory (compulsory) functions and optional (voluntary) functions. Obligatory functions are those the State must perform for its existence and security — defence, maintaining internal law and order, administration and justice. Optional functions are welfare activities the State performs to raise living standards — provision of education, health, pensions and other welfare measures. Hence …

Public expenditure of any modern government shows an increasing trend, because the range and scale of government activities keep expanding over time.

In earlier times the state confined itself to a few basic duties (defence, law and order, justice). Today governments perform many additional welfare and development functions — education, health, social security, infrastructure, subsidies, poverty-alleviation programmes and administration of a larger economy. As a result, total government spending rises steadily.

This persistent rise is explained by well-known ideas in public finance:

• Wagner's Law of increasing state activity — public expenditure grows faster than national output as an economy develops. …