Government spending or expenditure includes all government consumption, investment, and
transfer payments. 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. 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 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 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 expenditure
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 It is a purchase from the national accounts "use of income account" for goods
and services directly satisfying of individual needs or collective needs of members of the
community. 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.
Infrastructure and investment: gross fixed capital formation
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. Acquisition
of goods and services is made through production by the government 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. 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.
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.
Transfer payments
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 because they do not directly absorb resources or create
output. In other words, the transfer is made without any exchange of goods or services.
Examples of certain transfer payments include welfare, social security, and government giving
subsidies to certain businesses. International government spending
Per capita In 2010, the Federal government of the USA
spent an average of $11,041 per citizen. 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.
Of the 20 largest economies, only six spent less per citizen: South Korea, Brazil, Russia,
China, and India. Of the 13 that spent more, Norway and Sweden top the list with per citizen
spending of $40,908 and $26,760 respectively. As a percentage of GDP
This is a list of countries by government spending as a percentage of gross domestic
product for the listed countries, according to the 2014 Index of Economic Freedom by The
Heritage Foundation and The Wall Street Journal. Tax revenue is included for comparison.
United States of America
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 reports that total federal, state and local spending in
the United States was $6.134 trillion in 2010. Federal spending
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 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 spending
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. History
The United States Census Bureau publishes historical data on government spending in
the United States in its Statistical Abstract of the United States and in its special release
of historical statistics in 1976 at the time of the US Bicentennial.
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 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 also
References
External links Higgs, Robert. "Government Growth". In David
R. Henderson. Concise Encyclopedia of Economics. Indianapolis: Library of Economics and Liberty.
ISBN 978-0865976658. OCLC 237794267. Seater, John J.. "Government Debt and Deficits".
In David R. Henderson. Concise Encyclopedia of Economics. Indianapolis: Library of Economics
and Liberty. ISBN 978-0865976658. OCLC 237794267. Tullock, Gordon. "Government Spending". In
David R. Henderson. Concise Encyclopedia of Economics. Indianapolis: Library of Economics
and Liberty. OCLC 317650570, 50016270 and 163149563
OECD Government spending statistics Canadian Governments Compared