Last modified on 19 October 2014, at 21:55

Government spending

"Public Purse" redirects here. For the term used in relation to the British monarchy, see Privy Purse.


Government spending or expenditure includes all government consumption, investment, and transfer payments.[1][2] In national income accounting the acquisition by governments, of goods and services for current use, to directly satisfy the individual or collective needs of the community, is classed as government final consumption expenditure. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment (government gross capital formation). These two types of government spending, on final consumption and on gross capital formation, together constitute one of the major components of gross domestic product.

Government spending can be financed by government borrowing, seigniorage, or taxes. Changes in government spending is a major component of fiscal policy used to stabilize the macroeconomic business cycle.

Macroeconomic fiscal policyEdit

Main article: fiscal policy

For fiscal policy, increases in government spending are expansionary, while decreases are contractionary. John Maynard Keynes was one of the first economists to advocate government deficit spending (increased government spending financed by borrowing) as part of the fiscal policy response to an economic contraction. According to Keynesian economics, increased government spending raises aggregate demand and increases consumption, which leads to increased production and faster recovery from recessions. Classical economists, on the other hand, believe that increased government spending exacerbates an economic contraction by shifting resources from the private sector, which they consider productive, to the public sector, which they consider unproductive.

Current use: final consumption expenditureEdit

Government acquisition of goods and services for current use to directly satisfy individual or collective needs of the members of the community is called government final consumption expenditure (GFCE.) It is a purchase from the national accounts "use of income account" for goods and services directly satisfying of individual needs (individual consumption) or collective needs of members of the community (collective consumption). GFCE consists of the value of the goods and services produced by the government itself other than own-account capital formation and sales and of purchases by the government of goods and services produced by market producers that are supplied to households - without any transformation – as "social transfers" in kind.[3]

Infrastructure and investment: gross fixed capital formationEdit

Structure of General Government Expenditures[4]

Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is called gross fixed capital formation, or government investment, which usually is the largest part of the government.[5] Acquisition of goods and services is made through production by the government (using the government's labour force, fixed assets and purchased goods and services for intermediate consumption) or through purchases of goods and services from market producers. In economic theory or in macroeconomics, investment is the amount purchased per unit time of goods which are not consumed but are to be used for future production (i.e. capital). Examples include railroad or factory construction.

Infrastructure spending is considered government investment because it will usually save money in the long run, and thereby reduce the net present value of government liabilities.

Spending on physical infrastructure in the U.S. returns an average of about $1.92 for each $1.00 spent on nonresidential construction because it is almost always less expensive to maintain than repair or replace once it has become unusable.[6]

Likewise, government spending on social infrastructure, such as preventative health care, can save several hundreds of billions of dollars per year in the U.S., because for example cancer patients are more likely to be diagnosed at Stage I where curative treatment is typically a few outpatient visits, instead of at Stage III or later in an emergency room where treatment can involve years of hospitalization and is often terminal.[7]

Transfer paymentsEdit

Main article: Transfer payment

Government expenditures that are not acquisition of goods and services, and instead just represent transfers of money, such as social security payments, are called transfer payments. These payments are considered to be exhaustive[jargon] because they do not directly absorb resources or create output. In other words, the transfer is made without any exchange of goods or services.[8] Examples of certain transfer payments include welfare (financial aid), social security, and government giving subsidies to certain businesses (firms).

International government spendingEdit

Per capitaEdit

In 2010, the Federal government of the USA spent an average of $11,041 per citizen (per capita). This compares to the 2010 World average spending of $2,376 per citizen and an average of $16,110 per citizen for the World's 20 largest economies (in terms of GDP). Of the 20 largest economies, only six spent less per citizen: South Korea ($4,557), Brazil ($2,813), Russia ($2,458), China ($1,010), and India ($226). Of the 13 that spent more, Norway and Sweden top the list with per citizen spending of $40,908 and $26,760 respectively.[9]

As a percentage of GDPEdit

Public spending / GDP in Europe.
Legend: maroon > 55%, red 50–55%, orange 45–50%, yellow 40–45%, green 35–40%, blue 30–35%
Government Expenditure as a Percentage of GDP (2014 Index of Economic Freedom).[10]
Tax Burden as a Percentage of GDP (2014 Index of Economic Freedom).[10]

This is a list of countries by government spending as a percentage of gross domestic product (GDP) for the listed countries, according to the 2014 Index of Economic Freedom[10] by The Heritage Foundation and The Wall Street Journal. Tax revenue is included for comparison.

Country Tax burden % GDP Govt. expend. % GDP
 Afghanistan 8.7 23.0
 Albania 23.0 28.5
 Algeria 10.0 40.4
 Angola 6.1 38.6
 Argentina 34.6 40.9
 Armenia 16.7 25.0
 Australia 25.6 35.3
 Austria 42.1 50.5
 Azerbaijan 12.8 34.2
 Bahamas 16.4 23.0
 Bahrain 3.1 30.9
 Bangladesh 9.9 16.0
 Barbados 27.4 40.9
 Belarus 24.7 36.0
 Belgium 44.0 53.3
 Belize 23.3 29.3
 Benin 15.5 21.5
 Bhutan 13.5 37.8
 Bolivia 22.2 35.4
 Bosnia and Herzegovina 38.9 49.2
 Botswana 28.1 31.8
 Brazil 34.8 39.1
 Bulgaria 26.1 34.4
 Burkina Faso 13.7 24.3
 Burma 3.7 19.0
 Burundi 14.3 40.0
 Cambodia 10.9 19.6
 Cameroon 11.0 21.6
 Canada 31.0 41.9
 Cape Verde 20.2 32.3
 Central African Republic 9.4 15.7
 Chad 5.1 25.8
 Chile 18.7 23.2
 China 19.0 23.9
 Colombia 15.1 28.9
 Comoros 12.4 22.1
 Democratic Republic of the Congo 23.6 29.1
 Congo 8.4 26.1
 Costa Rica 21.9 18.2
 Ivory Coast 13.1 25.9
 Croatia 32.6 42.5
 Cuba 24.4 66.7
 Cyprus 26.5 46.1
 Czech Republic 35.3 43.3
 Denmark 48.1 57.6
 Djibouti 20.3 35.2
 Dominica 24.2 35.7
 Dominican Republic 12.9 16.1
 Ecuador 17.6 44.0
 Egypt 13.8 31.8
 El Salvador 15.4 21.7
 Equatorial Guinea 1.5 35.3
 Eritrea 50.0 33.6
 Estonia 32.8 38.3
 Ethiopia 11.3 18.4
 Fiji 23.0 28.2
 Finland 43.4 55.1
 France 44.2 56.1
 Gabon 10.1 24.7
 Gambia 13.2 26.0
 Georgia 25.4 31.8
 Germany 37.1 45.4
 Ghana 14.6 23.6
 Greece 31.2 51.9
 Guatemala 10.9 14.6
 Guinea 15.6 21.5
 Guinea-Bissau 8.6 21.2
 Guyana 21.2 30.6
 Haiti 13.1 33.5
 Honduras 16.1 25.9
 Hong Kong 14.2 18.5
 Hungary 35.7 49.4
 Iceland 36.0 47.3
 India 7.0 27.2
 Indonesia 11.8 18.5
 Iran 9.3 21.7
 Iraq 1.9 44.6
 Ireland 27.6 48.1
 Israel 32.6 44.6
 Italy 42.9 49.8
 Jamaica 23.4 31.9
 Japan 27.6 42.0
 Jordan 14.4 33.2
 Kazakhstan 14.6 22.3
 Kenya 20.1 29.1
 Kiribati 20.2 91.8
 North Korea N/A N/A
 South Korea 25.9 30.2
 Kuwait 0.8 38.5
 Kyrgyzstan 18.5 36.4
 Laos 13.7 21.0
 Latvia 27.2 38.8
 Lebanon 17.0 29.6
 Lesotho 37.6 63.1
 Liberia 19.8 31.4
 Libya 1.0 66.6
 Liechtenstein N/A N/A
 Lithuania 16.0 38.3
 Luxembourg 37.1 41.8
 Macau 34.5 16.6
 Macedonia 25.6 31.3
 Madagascar 11.1 16.0
 Malawi 19.9 35.1
 Malaysia 15.3 28.5
 Maldives 16.2 43.3
 Mali 14.0 24.7
 Malta 34.4 42.0
 Mauritania 17.5 28.4
 Mauritius 18.3 24.7
 Mexico 10.6 26.6
 F.S. Micronesia 12.0 65.3
 Moldova 30.8 39.0
 Mongolia 33.1 45.1
 Montenegro 24.2 43.8
 Morocco 23.0 34.6
 Mozambique 19.6 34.4
 Namibia 28.0 37.0
   Nepal 12.6 18.6
 Netherlands 38.7 49.8
 New Zealand 31.7 47.5
 Nicaragua 18.4 25.8
 Niger 14.1 19.6
 Nigeria 4.7 29.2
 Norway 43.2 43.9
 Oman 2.2 38.3
 Pakistan 9.3 19.8
 Panama 17.8 26.6
 Papua New Guinea 25.8 28.6
 Paraguay 13.4 19.1
 Peru 17.0 19.1
 Philippines 12.3 16.0
 Poland 31.7 43.5
 Portugal 31.3 49.4
 Qatar 2.9 30.5
 Romania 28.0 36.9
 Russia 29.5 35.8
 Rwanda 13.1 27.0
 Saint Lucia 25.1 34.8
 Saint Vincent and the Grenadines 22.1 30.3
 Samoa 23.4 43.9
 São Tomé and Príncipe 16.8 49.0
 Saudi Arabia 3.7 35.1
 Senegal 19.0 28.6
 Serbia 35.2 45.2
 Seychelles 31.7 35.7
 Sierra Leone 11.5 21.9
 Singapore 13.8 17.1
 Slovakia 28.8 38.3
 Slovenia 36.8 50.8
 Solomon Islands 36.9 51.2
 South Africa 27.3 32.1
 Spain 31.6 45.2
 Sri Lanka 12.4 21.4
 Sudan 6.7 17.9
 Suriname 19.0 26.9
 Swaziland 23.3 31.2
 Sweden 44.5 51.2
 Switzerland 28.5 33.8
 Syria 10.4 N/A
 Taiwan 8.8 22.6
 Tajikistan 19.5 27.0
 Tanzania 15.2 26.9
 Thailand 16.2 23.4
 Timor-Leste 276.7 139.7
 Togo 16.7 24.2
 Tonga 17.5 29.0
 Trinidad and Tobago 16.5 35.4
 Tunisia 21.1 34.8
 Turkey 25.0 34.9
 Turkmenistan 17.8 15.2
 Uganda 17.0 20.6
 Ukraine 38.0 45.6
 United Arab Emirates 6.1 23.7
 United Kingdom 35.5 48.5
 United States 25.1 41.6
 Uruguay 27.2 32.6
 Uzbekistan 20.2 31.4
 Vanuatu 16.4 24.7
 Venezuela 12.5 40.1
 Vietnam 21.1 30.9
 Yemen 5.3 28.9
 Zambia 19.3 23.9
 Zimbabwe 30.0 34.6
 Somalia N/A N/A
 Brunei 24.0 33.6

United States of AmericaEdit

Chart showing how the United States Congress spends the federal tax revenue.[11]

Government spending in the United States of America occurs at several levels of government, including primarily federal, state, and local governments. The Organisation for Economic Co-operation and Development (OECD) reports that total federal, state and local spending in the United States was $6.134 trillion in 2010.[12]

Federal spendingEdit

For more details on this topic, see United States federal budget.

As of September 2001 the U.S. Congressional Budget Office reported that federal government spending for 2004 was projected to be $2.293 trillion, or slightly less than 20% of the GDP. Of that, $646.7 billion was for net interest, $486 billion for defense, $492 billion for Social Security, $473 billion for Medicare and Medicaid, $191 billion for various welfare programs, $136 billion for "retirement and disability" benefits, and $64 billion was projected to be spent elsewhere.

There are two types of government spending – discretionary and mandatory. Discretionary spending, which accounts for roughly one-third of all Federal spending, includes money for things like the Army, FBI, the Coast Guard, and highway projects. Congress explicitly determines how much to spend (or not spend) on these programs on an annual basis. Mandatory spending accounts for two-thirds of all government spending. This kind of spending is authorized by permanent laws.

It includes insurance programs like Social Security, Medicare/Medicaid, the Supplemental Nutrition Assistance Program, and federal retirement and disability programs that provide benefits to federal civilian employees, members of the military, and veterans. Spending levels in these areas are mostly determined by the number of people who request and qualify for the program benefits as determined by the agencies. All government agencies face congressional oversight and most programs are updated and amended by congressional legislation, as well as internal agency rules and regulations. U.S. Congress members who seek to influence agencies with direct control have at times been prosecuted or disciplined by the respective House and Senate Ethics Committees.

State and local spendingEdit

The United States Census Bureau conducts a Census of Governments every five years for fiscal years ending in 2 or 7. The latest fiscal year covered by the Census of Governments is 2012.

HistoryEdit

The United States Census Bureau publishes historical data on government spending in the United States in its Statistical Abstract of the United States[13] and in its special release of historical statistics in 1976 at the time of the US Bicentennial.[14]

Over the last century, overall government spending in the United States has increased substantially from about seven percent of GDP in 1902 to about 35 percent of GDP in 2010. Major spikes in spending occurred in World War I and World War II.

When broken down by major function, the history of US government spending as a percent of GDP shows a slow and consistent increase in education spending; it shows the spikes in defense spending during World War I and World War II, and the sustained high level maintained during the Cold War. Spending on welfare shows a clear takeoff during the Great Depression and a modest decline following reform in 1996. Spending on pensions (primarily Social Security) begins to show up in the 1950s. Health care spending takes off after the birth of Medicare and Medicaid in the 1960s and shows sustained growth ever since.

See alsoEdit

ReferencesEdit

  1. ^ "Frequently Asked Questions: BEA seems to have several different measures of government spending. What are they for and what do they measure?". Bureau of Economic Analysis. May 28, 2010. Retrieved 12 July 2014. 
  2. ^ Robert Barro and Vittorio Grilli (1994), European Macroeconomics, Ch. 15–16. Macmillan, ISBN 0-333-57764-7.
  3. ^ F. Lequiller, D. Blades: Understanding National Accounts, Paris: OECD 2006, pp. 127–30
  4. ^ http://www.bluenomics.com/#!data/public_sector/general_gov_expenditures/structure_of_general_government_expenditures/structure_of_general_government_expenditures_quarterly_nsa_of_total_expenditures%7Cchart/line$countries=united_kingdom&sorting=list//title
  5. ^ "Gross capital formation" Statistics Explained European Union Statistics Directorate, European Commission
  6. ^ Cohen, Isabelle; Freiling, Thomas; Robinson, Eric (January 2012). The Economic Impact and Financing of Infrastructure Spending (report). Williamsburg, Virginia: Thomas Jefferson Program in Public Policy, College of William & Mary. p. 5. http://www.aednet.org/government/pdf-2012/infrastructure_report.pdf. Retrieved October 1, 2012.
  7. ^ Hogg, W.; Baskerville, N.; Lemelin, J. (2005). "Cost savings associated with improving appropriate and reducing inappropriate preventive care: Cost-consequences analysis". BMC Health Services Research 5: 20. doi:10.1186/1472-6963-5-20. PMC 1079830. PMID 15755330. 
  8. ^ Bishop, Matthew (2012). "Economics A-Z terms beginning with T;transfer". The Economist. Retrieved 11 July 2012. "Payments that are made without any good or service being received in return. Much PUBLIC SPENDING goes on transfers, such as pensions and WELFARE benefits. Private-sector transfers include charitable donations and prizes to lottery winners." 
  9. ^ CIA World Factbook, population data from 2010, Spending and GDP data from 2011These numbers fail however to account for State and Local Government Spending which when included bring the per Capital Spending to $16,755
  10. ^ a b c 2014 Index of Economic Freedom
  11. ^ Federal Budget Spending and the National Debt
  12. ^ "11. Government expenditure by function (COFOG)". OECD.Stats. Retrieved 18 April 2012. 
  13. ^ Statistical Abstract of the United States
  14. ^ Bicentennial Edition: Historical Statistics of the United States, Colonial Times to 1970, Part 2

External linksEdit