Government Spending On Welfare And The Gross Domestic Product

Introduction Various governments send out information regarding how various tax revenues are utilizes on people who pay these taxes. Spending is always broken into numerous categories and welfare is one of the biggest categories. Expenditure on welfare is directly extracted from government statistics[1]. There has been a great debate as to whether government spending on welfare has any relationship with the size of a country’s GDP[2]. As such, this research is meant to demystify the situation. The purpose of carrying out this research is to examine any underlying correlation between the government spending in welfare of the people and the gross domestic product. There are two hypotheses as far as this subject is concerned. One sates that†¦show more content†¦Additionally, people who are working in countries that have better welfare will be in a better position to work and hence help build the GDP. Hence, carrying out the research will help the researcher be able to choose between the two hypotheses and hence determine whether government expenditure on welfare effects the growth of the GDP or stagnation of the same. Literature Review The question of whether or not there is a correlation between government spending on welfare and the GDP has thrown policy makers into debates and clearly differing theoretical camps[3]. Empirical studies have given confusing evidence as some of the studies have favored one approach or the other depending on many factors in consideration. The huge growth of government spending on the welfare of the people in both development and developing countries since the times of the Second World War and its effect on the gross domestic product has produced a wide literature that offers distinct attempts to expound on the observed relationship[4]. On the other side, studies on public finance have been channels on the identification of the primary causes of the growth in public sector expenditure. Among the earliest trials to explain, the growth in the economic growth and expenditure in the public sector is Wagner’s Law. This law is based on the observations of Adolf Wagner. His observations were first for his country and then for rest of the world. He states that