Government Expenditure Theories - Automatic Spending vs Discretionary Spending - Who is really in control of spending?

Automatic expenditure (not surprisingly!) is expenditure that happens automatically. In other words, the government doesn't have exact control over the level of this type of expenditure. The most obvious example of this is spending on benefits. The government sets regulations for who is entitled to benefits, and it sets the level of the benefits. However, the one thing that it cannot dictate is the number of people who may then be entitled to them as this will often depend on the state of the economy. As the economy goes into recession and people lose their jobs, more people will be entitled to benefits. This will mean government expenditure will rise - not because the government chose to spend more, but simply because of the state of the economy. This spending is therefore automatic spending.

Discretionary spending is, by contrast, spending the government chooses to make. In a time of recession, it may choose to spend more to try to boost the level of aggregate demand and therefore equilibrium output. At other times, it may choose to lower the level of expenditure to avoid 'crowding out' private sector spending. Either way, it is operating a discretionary fiscal policy.