This refers to government spending in the performance of its functions. They are usually classified into two: recurrent expenditure and capital expenditure.
- Recurrent Expenditure: These are expenditures on running costs of government i.e. expenses incurred in the maintenance of government’s administrative machinery. Such expenditures include salaries and wages of public servants and members of armed forces, interest on public debts, travel and transport expenses, charges for utility services enjoyed e.g. electricity bills, etc.
- Capital Expenditure: This refers to government spending on projects which are not recurrent in nature, especially developmental projects that enhance the productive capacity of the economy as well as improve the general standard of living of the people. Expenses on the construction and maintenance of roads, bridges, dams, schools, and hospitals readily fall within this category.