Dalton’s Classification of Public Expenditure

Dalton’s Classification of Public Expenditure:

Dalton classified public expenditure into two categories ‘grants and purchase price’. He defined grants and a purchase price as, “payments by a public authority to any of its employees by way of salaries and wages, or to contractors, whom it employs, are purchase prices. On the other hand, payment of old age social insurance, are grants.” When the State incurs expenditure and gets in return some services or commodity, the expenditure is called a purchase price, for example- the salaries of government employees and the price paid for purchasing furniture, etc. But, when the government spends money and does not get any commodity of service in return, the expenditure is called a grant, for example- poor relief. Dalton also pointed out that these two kinds of public expenditure may go together. A purchase price may include an element of the grant when a public authority is buying above the price, which a non-monopolist private buyer would offer. This may be the case if higher salaries or wages are paid in the public sector than in comparable private employment. Thus, when the government pays a price for some service that is higher than a price that would have been offered by a private buyer, the excess can be regarded as a grant.

The distinction between the two types of expenditure is clear. But it is difficult to determine precisely, how much of any expenditure is of the nature of the grant and how much of the purchase price. For example, Dalton thinks that payment of interests on public debt and pensions are grants, if looked at from the point of view of the present, is a purchase price when looked at from the point of view of the past, when the loan was taken and utilized, it is a grant. Dalton does not regard interest as the price for the use of the loan but prefers to regard interest as a grant. Looking from this point of view, most of the public expenditure can be treated as a grant. There is always a gap between the receipts of commodities or services by the State and the payment of their price. This time lag is absent only when, receipts of services or commodities and the payment of their price, are done simultaneously. But, this actually does not happen. Similarly, there is a gap between the services rendered by the State employees and the payment made for their services by the State. This payment has been regarded by Dalton as a purchase price and that of interest as a grant, while the element of time lag is present in both. In fact, the State is continuously getting returns of the loan, which it had utilized. Hence, it would have been probably more correct to look upon interest as the purchase price.

Dalton distinguished between direct and indirect grants as, a grant may be said to be direct, when the whole benefit accrues to the person to whom the grant is made. It may be said to be indirect, if the benefit is passed on, in whole or in part; from the person to whom the grant is made to some other person. Thus, an old age pension is a direct grant. A subsidy to a private enterprise is an indirect grant. Here it must be noted that as part of the benefit of old age pension money, the sellers of the commodities are also benefitted. Similarly, the benefit of the subsidy may be passed on to the purchaser of the commodities in the form of lower prices. The benefit of a grant does not pass on to others, only when the money of the grant is not spent, otherwise, the benefit of all grants accrues at least partly to other people. However, this classification of public expenditure, on the whole, is considered satisfactory.

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