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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.

Contents

Macroeconomic fiscal policyEdit

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

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.[4] 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 of 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.[5]

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.[6]

Transfer payment spendingEdit

Government expenditures that are not acquisition of goods and services, and which 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, transfers are made without an exchange of goods or services.[7] Examples of certain transfer payments include welfare (financial aid), social security, and government giving subsidies to certain businesses (firms).

Government spending per countryEdit

Per capitaEdit

In 2010 national governments spent an average of $2,376 per person, while the average for the world's 20 largest economies (in terms of GDP) was $16,110 per person. Norway and Sweden expended the most at $40,908 and $26,760 per capita respectively. The federal government of the United States spent $11,041 per person. Other large economy country spending figures include South Korea ($4,557), Brazil ($2,813), Russia ($2,458), China ($1,010), and India ($226).[8] The figures below, indicate 42% 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 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).[9]
 
Tax Burden as a Percentage of GDP (2014 Index of Economic Freedom).[9]

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[9] by The Heritage Foundation and The Wall Street Journal. Tax revenue is included for comparison.

Country Tax burden % GDP Govt. expend. % GDP
  Afghanistan 9 23
  Albania 23 28
  Algeria 10 40
  Angola 6 39
  Argentina 35 41
  Armenia 17 25
  Australia 26 35
  Austria 42 51
  Azerbaijan 13 34
  Bahamas 16 23
  Bahrain 3 31
  Bangladesh 10 16
  Barbados 27 41
  Belarus 25 36
  Belgium 44 53
  Belize 23 29
  Benin 16 22
  Bhutan 14 38
  Bolivia 22 35
  Bosnia and Herzegovina 39 49
  Botswana 28 32
  Brazil 35 39
  Bulgaria 26 34
  Burkina Faso 14 24
  Burma 4 19
  Burundi 14 40
  Cambodia 11 20
  Cameroon 11 22
  Canada 31 42
  Cape Verde 20 32
  Central African Republic 9 16
  Chad 5 26
  Chile 19 23
  China 19 24
  Colombia 15 29
  Comoros 12 22
  Democratic Republic of the Congo 24 29
  Congo 8 26
  Costa Rica 22 18
  Ivory Coast 13 26
  Croatia 33 43
  Cuba 24 67
  Cyprus 27 46
  Czech Republic 35 43
  Denmark 48 58
  Djibouti 20 35
  Dominica 24 36
  Dominican Republic 13 16
  Ecuador 18 44
  Egypt 14 32
  El Salvador 15 22
  Equatorial Guinea 2 35
  Eritrea 50 34
  Estonia 33 38
  Ethiopia 11 18
  Fiji 23 28
  Finland 43 55
  France 44 56
  Gabon 10 25
  Gambia 13 26
  Georgia 25 32
  Germany 37 45
  Ghana 15 24
  Greece 31 52
  Guatemala 11 15
  Guinea 16 22
  Guinea-Bissau 9 21
  Guyana 21 31
  Haiti 13 34
  Honduras 16 26
  Hong Kong 14 19
  Hungary 36 49
  Iceland 36 47
  India 7 27
  Indonesia 12 19
  Iran 9 22
  Iraq 2 45
  Ireland 28 48
  Israel 33 45
  Italy 43 50
  Jamaica 23 32
  Japan 28 42
  Jordan 14 33
  Kazakhstan 15 22
  Kenya 20 29
  Kiribati 20 92
  North Korea N/A N/A
  South Korea 26 30
  Kuwait 1 39
  Kyrgyzstan 19 36
  Laos 14 21
  Latvia 27 39
  Lebanon 17 30
  Lesotho 38 63
  Liberia 20 31
  Libya 1 67
  Liechtenstein N/A N/A
  Lithuania 16 38
  Luxembourg 37 42
  Macau 35 17
  Macedonia 26 31
  Madagascar 11 16
  Malawi 20 35
  Malaysia 15 29
  Maldives 16 43
  Mali 14 25
  Malta 34 42
  Mauritania 18 28
  Mauritius 18 25
  Mexico 11 27
  F.S. Micronesia 12 65
  Moldova 31 39
  Mongolia 33 45
  Montenegro 24 44
  Morocco 23 35
  Mozambique 20 34
  Namibia 28 37
    Nepal 13 19
  Netherlands 39 50
  New Zealand 32 48
  Nicaragua 18 26
  Niger 14 20
  Nigeria 5 29
  Norway 43 44
  Oman 2 38
  Pakistan 9 20
  Panama 18 27
  Papua New Guinea 26 29
  Paraguay 13 19
  Peru 17 19
  Philippines 12 16
  Poland 32 44
  Portugal 31 49
  Qatar 3 31
  Romania 28 37
  Russia 30 36
  Rwanda 13 27
  Saint Lucia 25 35
  Saint Vincent and the Grenadines 22 30
  Samoa 23 44
  São Tomé and Príncipe 17 49
  Saudi Arabia 4 35
  Senegal 19 29
  Serbia 35 45
  Seychelles 32 36
  Sierra Leone 12 22
  Singapore 14 17
  Slovakia 29 38
  Slovenia 37 51
  Solomon Islands 37 51
  South Africa 27 32
  Spain 32 45
  Sri Lanka 12 21
  Sudan 7 18
  Suriname 19 27
  Swaziland 23 31
  Sweden 45 51
   Switzerland 29 34
  Syria 10 N/A
  Taiwan 9 23
  Tajikistan 20 27
  Tanzania 15 27
  Thailand 16 23
  Timor-Leste 277 140
  Togo 17 24
  Tonga 18 29
  Trinidad and Tobago 17 35
  Tunisia 21 35
  Turkey 25 35
  Turkmenistan 18 15
  Uganda 17 21
  Ukraine 38 46
  United Arab Emirates 6 24
  United Kingdom 36 49
  United States 25 42
  Uruguay 27 33
  Uzbekistan 20 31
  Vanuatu 16 25
  Venezuela 13 40
  Vietnam 21 31
  Yemen 5 29
  Zambia 19 24
  Zimbabwe 30 35
  Somalia N/A N/A
  Brunei 24 34

United StatesEdit

 
Federal, State, and local total spending history chart

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.[10] This is tracked in National Income and Product Accounts.

Federal spendingEdit

 
Chart showing how the United States Congress has spent the federal tax revenue, 2010-2014.[11]

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, $647 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 determines how much to spend on these programs on an annual basis in annual appropriations bills.[citation needed]

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. In some cases, mandatory spending is influenced by earmarks in multi-year spending bills like the Moving Ahead for Progress in the 21st Century Act and United States farm bill.[citation needed]

HistoryEdit

The United States Census Bureau publishes historical data on government spending in the United States in its Statistical Abstract of the United States[12] and in its special release of historical statistics in 1976 at the time of the US Bicentennial.[13]

Over the last century, overall government spending in the United States has increased from about 7 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.[14][unreliable source?]

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. 28 May 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. ^ "Gross capital formation" Statistics Explained European Union Statistics Directorate, European Commission
  5. ^ Cohen, Isabelle; Freiling, Thomas; Robinson, Eric (January 2012). The Economic Impact and Financing of Infrastructure Spending (PDF) (report). Williamsburg, Virginia: Thomas Jefferson Program in Public Policy, College of William & Mary. p. 5. Retrieved 1 October 2012. 
  6. ^ Hogg, W.; Baskerville, N.; Lemelin, J. (2005). "Cost savings associated with improving appropriate and reducing inappropriate preventive care: Cost-consequences analysis" (PDF). BMC Health Services Research. 5: 20. PMC 1079830 . PMID 15755330. doi:10.1186/1472-6963-5-20. 
  7. ^ Bishop, Matthew (2012). "Economics AZ– 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. 
  8. ^ CIA World Factbook, population data from 2010, Spending and GDP data from 2011. Note: these numbers do not include U.S. state and local government spending which when included bring the per capita spending to $16,755
  9. ^ a b c 2014 Index of Economic Freedom
  10. ^ "11. Government expenditure by function (COFOG)". OECD.Stats. Retrieved 18 April 2012. 
  11. ^ Federal Budget Spending and the National Debt
  12. ^ Statistical Abstract of the United States
  13. ^ Bicentennial Edition: Historical Statistics of the United States, Colonial Times to 1970, Part 2 Archived 18 January 2005 at the Wayback Machine.
  14. ^ "U.S. spending". Rolling Stone. April 19, 1990. p. 43. 

External linksEdit