- Government spending
Government spending or government expenditure is classified by economists into three main types. [Robert Barro and Vittorio Grilli (1994), "European Macroeconomics", Ch. 15-16. Macmillan, ISBN 0333577647.] 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 Keyneswas one of the first economiststo advocate government deficit spendingas part of the fiscal policyresponse to an economic contraction. In Keynesian economics, increased government spending is thought to raise aggregate demandand increase consumption.
Government spending in the United States occurs at several levels of government, including primarilyfederal, state, and local governments. The
United States Census Bureaupublishes an overview of governmentspending every year in the Statistical Abstract of the United States[ [http://www.census.gov/compendia/statab/ 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 alllevels of government in the United States was as follows:
Government spending expressed as a percent of
Gross Domestic Productis based on a total of $13,015.5 billion for calendar year 2006reported by the Bureau of Economic Analysis[ [http://www.bea.gov/national/xls/gdplev.xls Current-dollar and "real" GDP] ] .
As of September 2004 the U.S.
Congressional Budget Officereported that federal governmentspending 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.Fact|date=April 2007
tate and Local Spending
United States Census Bureauconducts a census of [http://www.census.gov/govs/www/estimate.html State and Local Government Finances] every five years and updates the census every year. The latest fiscal year reportedby the Census Bureau is 2006.
United States Census Bureaupublishes historical data series on government spending in the United Statesin its Statistical Abstract of the United States[ [http://www.census.gov/compendia/statab/ Statistical Abstract of the United States] ] and in its special release of historical statistics in 1976 at the time of the US Bicentennial. [ [http://www2.census.gov/prod2/statcomp/documents/CT1970p2-01.pdf Bicentennial Edition: Historical Statistics of the United States, Colonial Times to 1970, Part 2] ]
Over the last century starting overall government spending in the
United Stateshas 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 Iand World War II.
When broken down by major function, the history of 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 Iand World War II, and the sustained high level maintained during the Cold War. Spending on welfare shows a clear takeoff during the Great Depressionand 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 Medicaidin the 1960s and shows sustained growth ever since.
Divided vs. United Government
In an interview with
Charlie Rose, Milton Friedmannoted that government spending declines fastest in the United States when Democrats control the executive branch while Republicans control the legislature.Fact|date=December 2007
Referencing accounts from the
Bureau of Economic Analysisand the voting record, it can be seen that spending typically declines as a percentage of GDPwhen no party controls both the executive and legislative branches.Fact|date=December 2007
* [http://www.cbo.gov/budget/budproj.shtml CBO's Current Budget Projections] , Congressional Budget Office, "
March 2, 2007".
* [http://www.econlib.org/Library/Enc/GovernmentSpending.html The Concise Encyclopedia of Economics (CEE)]
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