101 Some of the things that governments spend money on are l

(10.1) Some of the things that governments spend money on are luxury goods (goods for which the proportion of people’s—or governments’—income that is spent on them is likely to rise as income grows). Health care and education may be such goods. If most goods that a government provides are of this type, the pressure for the share of government spending in total GDP to rise over time will grow. Should such pressures be resisted?

Solution

The cost of providing luxury goods is rising in USA. US spending in health care is around 17% which is highest in world. Rise in expenditure would lead to the spike in fiscal deficit which is not desirable in long run. Sustained rise in the fiscal deficit would cause problem in long run. Business sentiments are negatively affected if fiscal deficit is high and sustained. Now question is how much government should spend? government should spend as far as spending increases skills and production capacity. Rise in production capacity automatically generate revenue for paying off debts in long run. Government spending should not be made in unproductive activities. Further, government must rationalize its spending, for reducing expenditure in health, government can encourage young people to go for insurance plans. it would help to reduce the insurance premium thereby spending of government shall be controlled.