Importance of Public Expenditure on Production of an Economy: 

(i) It helps in creating income for various individuals and firms as a result of the purchase of goods and services and factor services from them. Expenditure on defence, development activities etc. creates demand for various goods and services, creating income for those individuals and firms producing them, thus increasing the purchasing power of the people.

(ii) It can help in increasing the production by increasing the efficiency of the people (by spending on education, medical facilities, sanitation etc.).

(iii) It can be used to create human skills through education and training thus increasing the ability to work and produce more.

(iv) It can be used as a means of producing essential raw materials and important inputs in the public sector, thus removing various shortages and ensuring smooth production.

(v) It is helpful in promoting and developing the basic and key industries such as capital goods industries.

(vi) Public expenditure incurred in providing social security schemes increases the purchasing power of low-income groups and hence their ability to work, thus increasing their willingness to work because of secured future assured by these policies.