Government spending

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

Government spending (or government expenditure) includes all government consumption, investment but excludes transfer payments¹ made by a state. Government acquisition of goods and services for current use to directly satisfy individual or collective needs of the members 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 (gross fixed capital formation), which usually is the largest part of the government gross capital formation. Acquisition of goods and services is made through own 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.

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. Government spending can be financed by seigniorage, taxes, or government borrowing.

The first two types of government spending, namely government final consumption expenditure and government gross capital formation, together constitute one of the major components of gross domestic product.

Government spending and economic theory

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, which in turn leads to increased production. Keynesian economists argue that the Great Depression was ended by government spending programs such as the New Deal and military spending during World War II. According to the Keynesian view, a severe recession or depression may never end if the government does not intervene.

Classical economists and Austrian 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. According to Austrian economists, the reason the Great Depression lasted as long as it did was because of significant government spending and government regulation of the economy.

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 2010.²

Federal Spending

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

As of September 2001^[update] 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, Supplemental Nutrition Assistance Program, and federal retirement and disability programs that provide benefits to federal civilian employees, members of the military, and veterans. — 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.^{citation needed}

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 2007.

US History

The United States Census Bureau publishes historical data on government spending in the United States in its Statistical Abstract of the United States³ and in its special release of historical statistics in 1976 at the time of the US Bicentennial.⁴

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.

US Government Spending Patterns

Divided vs. United Government

In an interview with Charlie Rose, Milton Friedman noted that US government spending declines fastest when Democrats control the executive branch while Republicans control the legislature.⁵

Referencing accounts from the Bureau of Economic Analysis and the voting record, it can be seen that US government spending typically declines as a percentage of GDP when no party controls both the executive and legislative branches.^{citation needed}

Government spending in the United States for FY 2006 ($ billion)
Chart showing how the United States Congress spends the federal tax revenue.⁶
Historical government spending in the United States from 1902 to 2010 (2008 estimate, percent GDP. 2009, 2010 'guesstimated' estimate)
Historical government spending by major function in the United States from 1902 to 2010 (2008 estimate, percent GDP)

International government spending per capita

Comparison of National Spending Per Citizen for the 20 Largest Economies.

Comparison of National Spending per GDP for the 20 Largest Economies.

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 $2376 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 ($4557), Brazil ($2813), Russia ($2458), China ($1010), and India ($226). Of the 13 that spent more, Norway and Sweden top the list with per citizen spending of $40908 and $26760 respectively.⁷

International government spending as a percentage of GDP

Public spending / GDP in Europe.

This is a list of countries by government spending as a percentage of gross domestic product (GDP) for the listed countries, according to the 2011 Index of Economic Freedom⁸ by The Heritage Foundation and The Wall Street Journal. Tax revenue is included for comparison.

Country	Tax burden % GDP	Govt. expend. % GDP
Albania	24.3	32.3
Algeria	8.0	35.4
Angola	6.1	41.6
Argentina	26.1	24.7
Armenia	16.8	21.8
Australia	30.8	34.3
Austria	42.9	49.0
Azerbaijan	17.7	31.1
Bahamas	16.8	20.9
Bahrain	4.8	25.7
Bangladesh	8.8	15.9
Barbados	32.9	41.3
Belarus	30.4	49.6
Belgium	46.5	50.0
Belize	22.7	28.2
Benin	17.2	23.0
Bhutan	9.0	34.6
Bolivia	28.5	34.8
Bosnia and Herzegovina	37.6	50.3
Botswana	30.2	40.2
Brazil	34.4	41.0
Bulgaria	33.3	37.3
Burkina Faso	12.1	21.6
Burma	3.0	8.0
Burundi	18.0	40.0
Cambodia	10.5	13.9
Cameroon	18.5	18.5
Canada	32.2	39.7
Cape Verde	20.6	31.1
Central African Republic	7.9	15.5
Chad	5.3	22.1
Chile	18.6	21.1
China	18.0	20.8
Colombia	19.3	26.5
Comoros	10.8	27.2
Congo	5.3	26.0
Democratic Republic of the Congo	13.1	22.7
Costa Rica	15.6	20.9
Côte d'Ivoire	15.2	19.7
Croatia	23.3	40.7
Cuba	41.2	78.1
Cyprus	39.2	42.6
Czech Republic	36.2	42.9
Denmark	49.0	51.8
Djibouti	22.7	40.6
Dominica	30.4	42.5
Dominican Republic	15.0	19.1
Ecuador	16.0	40.8
Egypt	15.4	34.0
El Salvador	13.0	20.0
Equatorial Guinea	0.9	25.5
Estonia	32.3	39.9
Ethiopia	9.9	19.4
Fiji	21.1	25.0
Finland	43.2	49.5
France	44.6	52.8
Gabon	9.9	20.1
Gambia	19.2	26.0
Georgia	24.9	36.4
Germany	40.6	43.7
Ghana	20.6	42.4
Greece	35.1	46.8
Guatemala	11.3	13.7
Guinea	14.7	17.4
Guinea-Bissau	10.2	38.8
Guyana	20.2	48.6
Haiti	10.3	18.2
Honduras	16.3	21.8
Hong Kong	13.0	18.6
Hungary	40.5	49.2
Iceland	40.1	57.8
India	18.6	27.2
Indonesia	13.3	19.2
Iran	6.1	28.3
Ireland	30.8	42.0
Israel	33.5	42.9
Italy	43.1	48.8
Jamaica	26.0	34.3
Japan	28.3	37.1
Jordan	18.3	36.1
Kazakhstan	27.7	26.8
Kenya	20.9	30.1
Kiribati⁹	39.0	114.6
Kuwait	1.5	31.8
Kyrgyzstan	23.3	29.3
Laos	12.5	18.2
Latvia	29.1	38.5
Lebanon	16.6	34.2
Lesotho	63.1	51.2
Liberia	28.6	33.4
Libya	3.4	43.0
Lithuania	30.6	37.4
Luxembourg	36.5	37.2
Macau	25.9	14.9
Macedonia	28.3	34.5
Madagascar	12.9	18.5
Malawi	16.5	38.0
Malaysia	15.3	26.3
Maldives	21.0	63.1
Mali	15.0	21.2
Malta	36.0	44.8
Mauritania	13.4	29.5
Mauritius	19.0	25.8
Mexico	8.2	23.7
Federated States of Micronesia	11.5	62.3
Moldova	33.4	41.6
Mongolia	30.8	41.0
Montenegro	30.0	48.8
Morocco	26.9	29.1
Mozambique	14.2	28.0
Namibia	24.8	29.0
Netherlands	39.8	45.9
Nepal	10.4	19.7
New Zealand	34.5	41.1
Nicaragua	18.0	25.0
Niger	11.4	23.8
Nigeria	5.9	30.0
Norway	42.1	40.2
Oman	3.0	32.6
Pakistan	10.2	19.3
Panama	10.6	19.5
Papua New Guinea	26.6	35.0
Paraguay	11.8	14.8
Peru	16.0	17.3
Philippines	14.1	17.3
Poland	34.9	43.3
Portugal	37.7	46.1
Qatar	4.9	27.0
Romania	28.5	37.6
Russia	34.1	34.1
Rwanda	13.5	26.7
Saint Lucia	27.5	30.9
Saint Vincent and the Grenadines	25.6	34.1
Samoa	23.0	32.7
São Tomé and Príncipe	16.1	32.9
Saudi Arabia	6.6	29.1
Senegal	18.3	26.6
Serbia	36.3	44.0
Seychelles	28.1	39.8
Sierra Leone	10.8	21.0
Singapore	14.2	17.0
Slovakia	29.3	34.8
Slovenia	37.6	44.3
Solomon Islands	24.1	47.3
South Africa	25.7	27.4
South Korea	26.6	30.0
Spain	33.9	41.1
Sri Lanka	13.3	22.6
Suriname	21.1	25.6
Swaziland	36.0	33.7
Sweden	47.9	52.5
Switzerland	29.4	32.0
Syria	10.2	22.1
Taiwan	12.9	18.5
Tajikistan	18.7	27.5
Tanzania	14.8	25.5
Thailand	16.0	17.7
Timor-Leste¹⁰ ¹¹ ¹²	24.6	97.0
Togo	16.3	19.5
Tonga	25.7	29.9
Trinidad and Tobago	19.4	28.4
Tunisia	22.4	27.3
Turkey	23.5	23.4
Turkmenistan	21.8	12.3
Uganda	11.9	17.8
Ukraine	37.7	47.3
United Arab Emirates	1.8	26.4
United Kingdom	38.9	47.3
United States	26.9	38.9
Uruguay	17.9	28.0
Uzbekistan	19.6	31.1
Vanuatu	19.7	26.4
Venezuela	13.6	34.0
Vietnam	23.6	28.8
Yemen	7.3	43.0
Zambia	17.5	24.6
Zimbabwe	31.7	97.8