Over the years, government expenditure also known as government spending has been identified as a major tool in improving the standard of living of citizens in a country. Various spending on recurrent and capital projects such as such as building of schools, provision of good and affordable health care, payment of salaries/casual wages, provision of good roads, electricity and clean water are determinants of standard of living (Morris, 1987). Increased spending on these infrastructures has the tendency of improving standard of living in a nation. For instance, policy interventions to reduce mortality may require increased public spending or, similarly, it may be necessary to spend more on educational programs that aim to increase primary completion rates. However, what matters is not only how much was spent but also how effectively this money was spent, there are a handful of countries that suggest an inconsistent relationship between changes in public spending and outcomes. For example, Thailand has increased public spending on primary schooling more than Peru did, yet primary school completion fell in Thailand and increased in Peru. Likewise, an analysis of Malaysia over the late l980s found little association between public spending on doctors and infant mortality, and the increased construction of public schools in Indonesia that occurred in the 1970s did not have a significant positive impact on school enrollments. The cross-country association between public spending and outcomes, after controlling for national income, is found to be statistically and substantively weak. The message is not that public funding cannot be successful; rather, it is commitment and appropriate policies, backed by effective public spending that can achieve these goals.
Public expenditure is not always effective in providing quality services and reaching the intended beneficiaries, who are often the poor, and this partly explains why spending has a weak relationship with outcomes. Another reason for such a weak relationship is the interaction between the private and public sectors
Increasing public provision may simply crowd out, in part or in whole, equally effective services offered by non-government providers. Unless resources supporting services that work for poor people, the public resources spent on these services will not get the optimal outcome. If more public money is spent on services and more of that money is spent on services utilized by the poor, the spending pattern will determine the efficacy of spending. For instance, wages and salaries of teacher on average account for 75% of recurrent public expenditure on education. There is no doubt that teachersâ€™ play a critical role in the schooling process and given; them adequate incentives is important; however, spending on other vital input(such as textbooks) is also important. Too much spending on one input will have a negative impact on the quality of learning. To address this, governments must tackle not only the technical or managerial questions of how much to spend on one input relative to another, but also the institutional and political contexts that generate these decisions ( Son, 2009).
Most poor Nigerians do not get their fair share of government spending an public services such as in health and education. Benefit incidence analysis on public expenditure provides a clearer picture of who benefits from government spending. Evidence largely suggests that the poorest fifth of the population receives less than a fifth of education and health expenditures, while the richest fifth gets more: 46% of education spending, and the poorest receive only 11% (Filmer 2003), Similarly, in other developing countries such as India the richest Eight receives three times the curative health care subsidy of the poorest Eight. One reason for this imbalance is that spending is biased toward services mainly utilized by richer people; another reason is that while channeling public spending toward services utilized by the poor helps, such services may not be reaching the targeted beneficiaries.