Everything about Government Spending totally explained
Government spending or
government expenditure is classified by economists into three main types. Government purchases of goods and services for current use are classed as . Government purchases of goods and services
intended to create future benefits, such as infrastructure investment or research spending, are classed as . Government expenditures that are not purchases of goods and services, and instead just represent transfers of money, such as social security payments, are called
transfer payments. Government spending can be financed by
seigniorage,
taxes, or government
borrowing.
The first two types of government spending, namely government consumption and government investment, together constitute one of the major components of
gross domestic product.
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. In
Keynesian economics, increased government spending is thought to raise
aggregate demand and increase
consumption.
European Union
United Kingdom
A constitutional monarchy, the United Kingdom's government has greatly decreased
public sector spending (for example government spending of taxes) since 1995, and annual spending on investment in infrastructure has grown from £5.6 billion in 1997 to £29 billion in 2006.
United States
Government spending in the United States occurs at several levels of government, including primarily
federal, state, and local governments. The
United States Census Bureau publishes an overview of government
spending every year in the
Statistical Abstract of the United States
In the most recent year for which actual spending for all levels of government has been reported, overall government spending for all
levels of government in the United States was as follows:
United States Federal, State,
and Local Government Spending
Fiscal Year 2005 |
| Function |
Amount
(billion) |
Percent
GDP |
| Overall government spending |
| Federal, State, Local |
$4,401.4 |
35.4 |
| Spending by major government function |
| Pensions |
$769.4 |
6.2 |
| Health Care |
$736.6 |
5.9 |
| Education |
$704.1 |
5.7 |
| Defense |
$601.4 |
4.8 |
| Welfare |
$362.9 |
2.9 |
| Interest |
$265.0 |
2.1 |
Government spending expressed as a percent of
Gross Domestic Product is based on a total of $12,433.9 billion for calendar year 2005
reported by the
Bureau of Economic Analysis.
Federal Spending
As of September 2004 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, $159 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 "entitlements" like Social Security, Medicare, and Food Stamps — programs through which individuals receive benefits based on their age, income, or other criteria. Spending levels in these areas are dictated by the number of people who sign up for these benefits, rather than by Congress.
State and Local Spending
The
United States Census Bureau conducts a census of
State and Local Government Finances
every five years and updates the census every year. The latest fiscal year reported
by the Census Bureau is 2005.
Spending Patterns
Divided vs. United Government
In an interview with
Charlie Rose,
Milton Friedman noted that government spending declines fastest in the United States when Democrats control the executive branch while Republicans control the legislature.
Referencing accounts from the
Bureau of Economic Analysis and the voting record, it can be seen that spending typically declines as a percentage of
GDP when no party controls both the executive and legislative branches.
Further Information
Get more info on 'Government Spending'.
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