Question

What are the factors that will cause government expenditure to fall while population increases?

Answer 1

While population increases, factors such as huge increase in the debt of the government would cause government expenditure to fall as government's don't have the money to spend.

Fall in the level of investment will also cause government expenditure to fall as government is getting reduced tax income, which impacts the money they hold as corporates might not be earning huge profits.

When its fiscal deficit is way higher than GDP, even then the government doesn't have money to spend, which could lower the ratings as even though it wants to spend to revive growth, it doesn't have the money, thereby impacting expenditure.

Increase in interest payments from revenue sources also reduces the expenditure as most of the revenue is spent on repaying interest on debt.

Thus even though it will need huge expenditure to serve its higher population, lack of resources, funding and stable revenue streams deter it from spending in the economy.