Impact of Low Expenditure on Welfare Programs
Abstract
The level of expenditure in a particular economy directly affects the provision of welfare programs in that particular country. This paper particularly investigates the impact of a low expenditure on welfare programs in the United States of America. The paper explains in detail both the negative and positive implications of low expenditure in the United States. Specifically, the paper looks into how low expenditure reduces the morale to work and the negative implication of this on income levels. Moreover, the paper shows how low expenditure makes the redistribution role of the government to collapse thereby leading to income inequalities and other forms of disparities in the society. Other negative implications that are discussed are: reduction in savings and low economic growth and development. On the other hand, as discussed in this paper, low expenditure on welfare programs have positive implications which include, among other things, reduction in negative multiplier costs.
Introduction
Over the years, the supply of labor and other work incentives has been seen to have a direct impact on the economies of countries. As a result, work has been a significant area of concern for welfare policy reforms in the United States, a move that has culminated in major changes of the policies concerned since the 1990s. The intention has always been to have an increase in the rates of employment among the American citizenry. This would have a corresponding increase in the level of earnings of welfare recipients as well as other disadvantaged individuals. Most of the analyses presented by economists and scholars regarding the issue have primarily focused on public arrangements. It is, however, vividly clear that social efforts from the people of a particular country have not been restricted to the public domain thus causing a shift from public to private social arrangements. This strongly indicates that the extent to which both the private and public sectors spend on expenditures has had a direct impact on the welfare programs of the citizens.
The work incentives of programs have been a means to attest to credible transfer of benefits to peoples with low incomes and as a result, having a significant impact to voters and policy implementers in the USA. The issuance of work incentives first implemented in the 1960s in the United States has been a major source of aid to families with dependent children and has served to lower taxes on earnings in order to encourage a greater majority to work (Goudswaard 188). Government expenditure serving to increase interests in order to encourage work among welfare recipients, has consequently not served its purpose of reducing the rate of taxation, but has rather had an influence on the focus of job requirements. This has consequently caused the deprivation of resources among a small marginalized group in the United States resulting to low incomes among the people. In order to mitigate the situation, the American government had to include a legislation in 1996 which was aimed at reviewing work requirements in the country (Goudswaard 190). This included the expansion of the Earned Income Tax Credit (EITC), which is an earnings subsidiary program aimed at boosting the financial credibility of citizens. It is clear that a reduction on government expenditure on the above stated programs would have a corresponding decrease in the number of working individuals in the country causing a decrease in the amount of earnings realized by the people. This would have a corresponding decrease in the expenditure on welfare programs by reducing the amount of money allocated for them.
Inequality among the citizens and disparities in income
Government expenditure is a significant factor contributing to the promotion of equality among individuals in a country and also between nations at large. Since time immemorial, people have always expressed divergent characteristics both philosophically and cognitively as well as culturally in aspects relating to talent, opportunities and social-economic backgrounds. As a result, market conditions and processes have had a significant impact on the income levels achieved by people within a particular country (Akerlof 15). The involvement of government expenditure in this case scenario is to achieve redistribution of incomes in a market through trade regulation, taxes and social benefits. Empirical researches form professionals and scholars have directly linked the safeguard of social protection systems to the distribution of incomes in a country.
It is however important to realize that social effort has not been constrained to the public sector alone since a significant population also acts as a factor of production in the private sector. In effect, private arrangements have also served the purpose achieved through public programs, thereby acting as suitable substitutes. These private endeavors acting in capacity of income generation opportunities among people have been a key concern for economists as social arrangement in countries have been on the rise each year. In connection to this, a number of welfare state reforms in several countries have caused a shift from the public to private arrangements, eliciting mixed reactions from the political elite on whether the consequences of such a move can affect the redistributable impact of the welfare programs of the state (Akerlof 15). Research has indicated that in a case scenario where government expenditure is lower than those of the private sector, a lot of disparities in incomes will be witnessed in the different workforces. In addition, in the case where both sectors have reduced expenditure, there will be economic disparities between citizens of the concerned state verses those of other states leading the lack of equal allocation of resources for welfare programs creating economic disparities among states.
Reduced Savings
Government spending helps to shape the market costs in any given economy. In a healthy competitive market, buyers and sellers act as the main determinants of the price indexes in that particular market. This naturally occurring process ensures an equitable resource allocation in the economy. Reduced government expenditure on the welfare programs in a country corresponds to an added advantage of better business operation opportunities in the private sector. This is because for every dollar saved by the government, its deficit is always experienced in the market at large. The allocation of resources in the welfare programs laid by a country can as a result suffer immensely from this misallocation of resources. This is because the provision of good healthcare and education services in any given country is determined by the government’s ability to cover for expenses relating to the growth and sustenance of the given industry.
In effect, government subsidies help to caution the needy individual from out-of-pocket expenses since it acts as a third party player in ensuring that these services are availed to its citizens. Low government expenditure causes the consumer to reach for his saved resources which undermines the ability of the people to save in a highly competitive market, causes the lack of provision of welfare programs such as the Medicaid to needy groups in society. In addition, this allows the private sector to significantly inflate prices of basic necessities such as medical care and education, which renders the welfare programs non-beneficial to the needy in the United States. This has the potential to cripple and lead to a collapse of the welfare programs. The American citizen is thereby left in the mercy of his fellow well-off and affluent American citizen which increases the rate of dependency in the country. Low government expenditure could also mean the misallocation of resources which has the potential to cripple welfare programs in the country.
Negative impacts on GDP and Economic Development of a country
There is a fine line between economic (GDP) growth and economic development. While economic growth focuses on material wellbeing of a nation, economic development goes ahead to focus on the quality of life. According to the theory of economics of government spending, it is not sufficient to draw a conclusion that low levels of government expenditure outlay the direction of progression of the economy of a particular state or country. This leads to the inability to cater for welfare programs in the country or state. Besides, economists have come to the concession that in particular circumstances, lower levels of government spending could have the potential to steer economic progress in a particular country which is in contrast to the above argued points. Very low government expenditure rates will consequently restart the rate of economic growth in a country, and the provision of welfare programs and infrastructure would be hindered significantly. For maintenance of law and order to work effectively, it is important that governments steer economic activities in a country through increasing the expenditure (Danziger 980). The increased rate of government expenditure however, can in turn become a liability for certain reasons. One of the most common is the increasing size of the government or the misallocation of resources in different sectors of the economy, or in the worst case scenario, a situation where corruption and fraudulent actions infiltrate the running of the government. These results to a general decrease in the Gross Domestic Product (GDP) of the county involved. In effect the reduction in the amount of government expenditure could have the impact of improving the economic conditions of the country, translating to better provision of welfare programs in the country. Taxes are the main financers of government expenditure. In this particular case scenario whereby the government has a very high expenditure rate and seeks to improve the economy through reduction in expenditure, welfare programs are likely to benefit since high taxation discourages productive behavior among citizens and reduces savings and investments (Danziger 980). In effect, more resources can be channeled to welfare programs which serve to boost incomes in needy families, the disabled and children. The relationship between low government spending in welfare programs and economic development is that it reduces the quality of life among a significant group of citizens which in turn means low development.
Reduction in negative multiplier costs
Reduced government expenditure can also serve to reduce negative multiplier costs which help finance harmful interventions which cripple welfare programs in a country. This reduction in the levels of expenditure helps to curb such negative effects on economic activities practiced by regulatory agencies that have very insignificant budget costs but impose large costs to the economy thereby depriving the government off resources that could be geared to the financing of welfare programs (Blau 209). The direct expenses imposed on needy groups to memberships by owner countries in international organizations like the IMF and the Organization for Economic Co-operation and Development (OECD), have dented the growth policies of countries leading to the inability to finance welfare programs in the USA. These renowned cash programs like the Temporary Assistance for Needy Families (TANF), which provides benefits particularly to single mothers and children as well as the Supplemental Security Income (SSI) program, which serves the physically challenged and aged have suffered a lot from the deprivation of resources through heavy taxation. This is because Earned Tax Income Credit (EITC) serves only those individuals categorized under the group and have positive earnings (Blau 211). In addition, Temporary Assistance for Needy Families (TANF) is budgeted to suffer up to 100% marginal monthly taxation. Medicaid, which suffers 0% to over 100% taxation is also greatly affected. This often translates to reduced returns from these welfare programs. In effect, a reduction in government expenditure which consequently reduces miscellaneous expenditures can become a benefiting factor to welfare programs in the country.
Conclusion
Works cited
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Danziger, Haveman. "How income transfers affect work, savings, and the income distribution: a
critical review", Journal of Economic Literature 19: (2013) 975-1028.
