Government spending

"Public Purse" and "Public money" redirect here. For the term used in relation to the British monarchy, see Privy Purse. For the academic journal formerly called Public Money, see Public Money & Management.

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 (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 policy

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 expenditure

Main article: Government 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 (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.

Infrastructure and investment: gross fixed capital formation

Main article: Gross fixed capital formation

Further information: Investment § In economics or macroeconomics

Government acquisition 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 (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.

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

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 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 (financial aid), social security, and government giving subsidies to certain businesses (firms).

International government spending

Per capita

In 2010 the average national government spent $2,376 per citizen, whilst the average for the world's 20 largest economies (in terms of GDP) was $16,110 per citizen. Norway and Sweden topped the list with per citizen spending of $40,908 and $26,760 respectively. The federal government of the USA spent an average of $11,041 per citizen (per capita), ahead of only South Korea ($4,557), Brazil ($2,813), Russia ($2,458), China ($1,010), and India ($226) in the twenty largest world economies. The figures below, indicate 41.6% of GDP spending and a GDP per capita of $54,629, which suggests and total per person government spending of $22,726 in the U.S.

As a percentage of GDP

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).

Tax Burden as a Percentage of GDP (2014 Index of Economic Freedom).

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 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
DR 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	22.4
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
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 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 (OECD) reports that total federal, state and local spending in the United States was $6.134 trillion in 2010. This is tracked in National Income and Product Accounts.

Federal spending

Chart showing how the United States Congress has spent the federal tax revenue, 2010-2014.

Further information: 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 on these programs on an annual basis in annual appropriations bills.

Mandatory spending accounts for two-thirds of all federal spending. This kind of spending is authorized by permanent laws, and 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. In some cases, mandatory spending is influenced by earmarks in multi-year spending bills like highway bills and farm bills.

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 (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. By 1990, the United States was spending 2 per cent of its budget on education, as against 30 per cent on the elderly.

See also

2

External links

• Higgs, Robert (2008). "Government Growth". In David R. Henderson (ed.) (ed.). Concise Encyclopedia of Economics (2nd ed.). Indianapolis: Library of Economics and Liberty. ISBN 978-0865976658. OCLC 237794267. {{cite encyclopedia}}: |editor= has generic name (help)
• Seater, John J. (2008). "Government Debt and Deficits". In David R. Henderson (ed.) (ed.). Concise Encyclopedia of Economics (2nd ed.). Indianapolis: Library of Economics and Liberty. ISBN 978-0865976658. OCLC 237794267. {{cite encyclopedia}}: |editor= has generic name (help)
• Tullock, Gordon (2002). "Government Spending". In David R. Henderson (ed.) (ed.). Concise Encyclopedia of Economics (1st ed.). Indianapolis: Library of Economics and Liberty. {{cite encyclopedia}}: |editor= has generic name (help) OCLC 317650570, 50016270, 163149563
• OECD Government spending statistics
• Canadian Governments Compared