The correct answer is option 'B': The free-rider problem.
Government spending on public goods can lead to the free-rider problem. Let's understand what the free-rider problem is and how it is related to government spending on public goods.

1. Free-rider problem:
The free-rider problem refers to a situation where individuals can benefit from a public good without contributing to its provision. In other words, individuals can enjoy the benefits of a public good without paying for it. This creates a problem because if everyone acts as a free rider, there may not be enough funding to provide and maintain the public good.

2. Government spending on public goods:
Public goods are goods and services that are non-excludable and non-rivalrous in consumption. Non-excludable means that individuals cannot be excluded from using the good, and non-rivalrous means that one person's consumption does not reduce the availability for others. Examples of public goods include national defense, street lighting, and public parks.

3. The free-rider problem and government spending on public goods:
When the government spends money on providing public goods, it typically uses tax revenue to fund these expenditures. However, since public goods are non-excludable, individuals who do not pay taxes can still benefit from these goods. This creates an incentive for individuals to avoid paying taxes and become free riders.

4. Consequences of the free-rider problem:
The free-rider problem can have several negative consequences:

- Inadequate provision: If too many individuals act as free riders and do not contribute to the funding of public goods, there may not be enough resources to provide and maintain these goods at an optimal level. This can lead to underinvestment in public goods and a reduction in their quality and availability.

- Inefficient allocation of resources: The free-rider problem can also lead to an inefficient allocation of resources. When individuals do not contribute to the funding of public goods, the burden of financing these goods falls on those who do pay taxes. This can create an imbalance and a misallocation of resources.

- Market failure: The free-rider problem is considered a form of market failure because it results in the underprovision of public goods. In a market economy, the private sector may not have sufficient incentives to provide public goods due to the free-rider problem. This is why government intervention is necessary to ensure the provision of public goods.

In conclusion, government spending on public goods can lead to the free-rider problem, where individuals can benefit from these goods without contributing to their provision. This can result in inadequate provision, inefficient allocation of resources, and market failure.