To get the conversation going, I thought I'd elaborate on the first point I made in my abstract: That governments frequently spend on things that they shouldn't be spending on. As a principle, governments should spend on things that the private sector, left to its own devices, will not (otherwise, government would simply be crowding out the private sector and wasting the public's money). In economics jargon, these goods and services are called public goods or goods with externalities. The classical examples include national defense and lighthouses (although, with GPS technology, the latter have become irrelevant). But clearly governments spend on more than national defense. Two of the biggest expenditure items are education and health. In each of these, there are public-good or externality elements, although there are private goods as well. For instance, in education, the main benefit from education is that the student earns a higher wage, which is a private good. There may also be an externality, such as the fact that society as a whole benefits from having a literate and numerate population. However, governments typically finance and provide all of education, rather than just the externality (which should strictly speaking be addressed with a subsidy to education). Furthermore, this externality is highest at the primary level, lower at the secondary level and lowest at the tertiary level. Yet government spending per student is highest at the tertiary level. This is an example of government spending on private goods (university education) with scarce public resources. There may be an equity argument for government spending on university education, but this would imply governments should subsidize or give free tuition to poor students, not all students. In fact, most of the students attending free public universities come from the richest quintiles of the population. In short, government spending on higher education (sometimes amounting to 1-2 percent of GDP) has very little justification. What then is the benefit of having PFM systems that track public spending in education closely? Are we perpetuating a wasteful system? Let the discussion begin....
Shanta
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