Government Income and Expenditure

9 Key excerpts on "Government Income and Expenditure"

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  eBook - ePub

  Macroeconomic Theory

  A Dynamic General Equilibrium Approach - Second Edition

  • Michael Wickens(Author)
  • 2012(Publication Date)
  • Princeton University Press

    (Publisher)

  figure 5.1 , which plots government expenditures as a proportion of GDP for the United States and for the United Kingdom since 1901. Real government expenditures on goods and services and real social security benefits as a proportion of GDP have increased considerably over the last century. In 1901 they were only 2.3% of GDP for the United States and 13.5% for the United Kingdom. In most Western countries they increased from around 10–20% of GDP prior to World War I to around 40–50% after World War II. The wars themselves were the times of the greatest expansion in government expenditures. Since World War II, the shares of government expenditures in GDP have risen steadily and, apart from unemployment benefits, which vary countercyclically over the business cycle, they are not much affected by the business cycle. On average, the expenditures on goods and services and on transfers are roughly equal in size. Total government expenditures also include interest payments on government debt.

  Government revenues are primarily tax revenues: direct taxes on incomes and expenditure, social security taxes, and corporate taxes. The balance varies somewhat between countries, but for most developed countries direct taxes and social security taxes—which are in effect taxes on incomes—are about 60% of total tax revenue, consumption taxes are about 25%, and corporate taxes are about 10%. The average tax rate on incomes (including social security) is around 42%. Tax revenues tend to be more affected by the business cycle than expenditures. This is the main reason why government deficits tend to increase during a recession.

  As previously noted, governments can raise additional revenues through borrowing from the public or borrowing from the central bank, i.e., by printing money. The government simply extends its overdraft on its account with the central bank, which cashes checks issued to the public by the government.

  It is common in macroeconomics without microfoundations, such as Keynesian macroeconomics, to treat government expenditures as having no welfare benefits. They are included simply to allow fiscal policy to be included in the analysis and to allow the size of the fiscal multiplier to be calculated. In the standard Keynesian model this is the effect on GDP of a discretionary change in government expenditures. As this is tantamount to buying goods and services and then throwing them away—or, as Keynes himself noted, burying them— this is not a satisfactory formulation of fiscal policy. In our analysis we start by including government expenditures in the household’s utility function. We then discuss the issue of the optimal level of government expenditures. This is followed by an analysis of public finances: how best to pay for government expenditures and satisfy the government budget constraint. We also examine optimal tax policy, optimal debt, and the sustainability of fiscal deficits (the fiscal stance) in the longer term. At the end of the chapter we summarize our findings on the best way to manage fiscal policy.

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  Public Sector Economics

  Made Simple

  • D. I. Trotman-Dickenson(Author)
  • 2014(Publication Date)
  • Made Simple

    (Publisher)

  It also helps in understanding the basis on which fiscal policy is formulated. Compatible functions. Provision of goods and services under the heading of one function may reinforce a policy under another. Thus expenditure to counteract unemployment has both an economic and social objective. Conflicting functions. Not all government aims are compatible. Re-distribution of income in so far as it reduces investment in industry can conflict with a policy to foster economic growth since an increase in invest-ment is considered to play an important part in it. In some countries a different tier of government may be responsible for a particular function or it may be shared. Countries with Federal governments such as USA, India and Nigeria may divide the various functions between a) federal government, b) state government, c) local government. Countries with a two tier government such as the UK divide functions between central government and local authorities. The split and the range of functions will be influenced by the political and economic system and the level of economic development. Definition of Public Expenditure Public expenditure can be defined in different ways, as: (i) the expenditure of central and local government; (ii) the combined government expenditure plus disbursements out of the national insurance (social security) fund; (iii) the total government expenditure as in (ii) plus expenditure of the public corporations. The size of the public expenditure will depend on the definition adopted and will differ accordingly. This can give rise to confusion when com-parisons are made over a period of time or internationally. Thus if public expenditure is defined in terms of what the central government and local authorities spend, it will appear smaller, than when expenditure by public corporations is included.

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  China's Public Finance

  Reforms, Challenges, and Options

  • Shuanglin Lin(Author)
  • 2022(Publication Date)
  • Cambridge University Press

    (Publisher)

  6 The Size and Structure of Government Expenditure 6.1 Introduction Government expenditure is a key instrument through which government seeks to achieve its economic and social goals. Adam Smith (1776) argued that the government has duties to erect and maintain a public education system, a transportation system, public infrastructure needed to support commerce, public safety, and national defense, and a justice system that protects as far as possible, every member of society from the injustice or oppression of every other member of it. He mentioned that the govern- ment should provide services that “support the whole of society.” In modern public finance, government is entrusted with more responsibil- ities, such as stabilizing the economy and promoting economic growth. The size and structure of government expenditure are important issues in public finance. The size of government expenditure is usually measured by the ratio of government expenditure in gross domestic product (GDP), and it matters for economic development. By introducing government expenditure into the production function, Barro (1990) showed that the- oretically, if government expenditure is small, an increase in government expenditure will increase the growth rate of the economy; if government expenditure is large, an increase in government expenditure will decrease the growth rate. However, Landau (1983, 1986) found that government spending negatively affects economic growth based on data from more than 100 countries. The structure of government expenditures is repre- sented by the shares of various government expenditures in total govern- ment expenditure, and it also matters. Barro (1991) showed that government consumption expenditures negatively affect economic growth and government investment expenditures are insignificantly related to 163 economic growth. De Long and Summers (1991) demonstrated a positive causal relationship between government equipment investment and GDP growth.

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  Government at a Glance 2013

  • OECD(Author)
  • 2013(Publication Date)
  • OECD

    (Publisher)

  Revenues encompass taxes other than social contributions (e.g. taxes on consumption, income, wealth, property and capital), social contributions (e.g. contributions for pensions, health and social security), and grants and other revenues. Grants can be from foreign governments, international organi-sations or other general government units. Other revenues include sales, fees, property income and subsidies. These aggregates are not directly available in the OECD National Accounts , and were constructed using sub-account line items (see Annex A). 3. PUBLIC FINANCE AND ECONOMICS Revenue structure by level of government GOVERNMENT AT A GLANCE 2013 © OECD 2013 73 3.17. Distribution of general government revenues across levels of government (2001 and 2011) Source: OECD National Accounts Statistics (database). 1 2 http://dx.doi.org/10.1787/888932941614 % 0 10 20 30 40 50 60 70 80 90 100 GBR NZL NOR MEX IRL ISR ISL GRC PRT EST DNK CZE HUN LUX TUR AUS KOR NLD SWE BEL USA SVN POL ITA SVK AUT FIN CAN FRA CHE ESP DEU JPN 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 Central government State government Local government Social security OECD GOVERNMENT AT A GLANCE 2013 © OECD 2013 74 3. PUBLIC FINANCE AND ECONOMICS General government expenditures Governments spend money mainly for two purposes: to produce and/or pay for the goods and services delivered to citizens and businesses and to redistribute income. Comparing government expenditures across OECD member countries, as a share of GDP or per capita, provides a measure of the size of the government sector in the econ-omy in terms of financial resources spent.

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  Economics

  Theory and Practice

  • Patrick J. Welch, Gerry F. Welch(Authors)
  • 2016(Publication Date)
  • Wiley

    (Publisher)

  Crowding Out Occurs when borrowing by the federal government reduces borrowing by households and businesses. Summary 1. The two main categories of government expenditures are purchases of goods and services and transfer payments. Some government purchases are for public goods, which are provided for all of society and from which no one can be excluded. 2. Governments receive revenues from taxes and other sources, such as contributions for social insurance. The primary source of federal government revenue is the individual income tax. Taxes may be classified according to the relationship between the percentage of income taxed and the size of the income: A progressive tax has a direct relationship, a regressive tax has an inverse relationship, and the percentage stays the same for a proportional tax. 3. Tax reform sometimes occurs because of a need for additional government funding or for political reasons. A tax base is the thing on which a tax is levied, and the tax rate is the amount that is levied on the base. 4. Fiscal policy refers to changes in government expenditures and/or taxes for the purpose of influencing the levels of output, employment, or prices in the economy. Fiscal policy can be used to reduce unemployment by injecting more spending into the economy through increased government purchases, increased transfer payments, and/or decreased taxes. Demand‐pull inflation is reduced through decreased government purchases, decreased transfer payments, and/or increased taxes. 5. Fiscal policy is either discretionary or automatic. Discretionary fiscal policy is the deliberate adjustment of government purchases, transfers, and/or taxes by Congress to control unemployment or inflation. Automatic stabilization is the automatic change in some government expenditures, like transfer payments, and some taxes,

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  Handbook of Governmental Accounting

  • Frederic Bogui(Author)
  • 2008(Publication Date)
  • Routledge

    (Publisher)

  Constitution, to levy taxes and pro-vide certain services. A situation normally referred to as the “fiscal federalism” in the United States (Advisory Commission on Intergovernmental Relations, 1995). This chapter provides a brief overview of expenditures and revenues for all levels of U.S. governments. The first section discusses government expenditures, includ-ing the overall size and growth of government, the explanation of governmental expansion, and the breakdown of responsibilities for each level of government. The second section describes major sources of revenues for each level of government to fund their services, including revenues that are raised by a government itself as well as intergovernmental transfers. 3.2 Expenditures 3.2.1 Size and Growth of Government Expenditures in the United States Government expenditures in the United States have been growing in the past several decades (see Table 3.1). In 1950, all levels of government combined spent about $58 billion (U.S. Bureau of the Census, 1975). In 2000, total government spending was approaching $3 trillion, an increase of more than 46 times (Office of Management and Budget, 2006). Over the past five decades, expenditures have grown dramati-cally at all levels of government, but the share of expenditure in different levels of government has shifted several times over the last century. In the 1900s, local governments have by far the largest share of expenditures, followed by the federal government and then the states. During the Great Depression, federal spending suddenly rose above local expenditures and has since become the leading spender (Lee, Johnson, and Joyce, 2004). The federal share of expenditure had increased to 73.6% by 1950 and stayed at about 70% in the early 1980s (Office of Management and Budget, 2006).

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  Financial Planning and Management in Public Organizations

  • Alan W. Steiss, Emeka O. Nwagwu, Alan W. Steiss, Emeka O. Nwagwu(Authors)
  • 2001(Publication Date)
  • Routledge

    (Publisher)

  2 Revenues and Expenditures in the Public Sector Historically, the United States has relied on a mixed private-public economic sys­ tem. The national economy is built primarily on the private sector—on the “invis­ ible hand” of supply and demand in the marketplace—with the public economy invoked when the market system fails to satisfy significant social goals. 1 RATIONALE FOR PUBLIC SECTOR ECONOMICS Economic activities in the public sector include (1) the provision of public goods and services (e.g., parks and recreational facilities, primary and secondary edu­ cation, public health facilities and programs), (2) the allocation and distribution of resources (public welfare, differential incidence in the costs and benefits of public programs), (3) correction of market imperfections, including natural mo­ nopolies and externalities, and (4) the provision of collective risk (including public safety, national security and defense). Each of these factors plays a role in defining the fiscal responsibilities of local government. 1.1 Provision of Public Goods and Services Public goods and services are generally those that cannot be effectively supplied by the marketplace because private entities cannot exact a price for each unit of benefit sufficient to cover the costs. The costs of public goods must be subsidized 35 36 Chapter 2 through other sources of revenues. Direct payments are largely voluntary (as with “contributions” in support of some public service), and some consumers are “free riders.” Government assumes production of public goods or services when they are undersupplied or unsupplied, and exacts a price from consumers in the form of taxation. Once supplied, no one can be excluded from accessing the ben­ efits of a public good. 1.2 Allocation of Resources Public sector policies address the allocation of resources—the distribution of wealth, stabilization, and growth.

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  Tax Expenditure Management

  A Critical Assessment

  • Mark Burton, Kerrie Sadiq(Authors)
  • 2013(Publication Date)
  • Cambridge University Press

    (Publisher)

  The tax expenditures concept 40 definition of income is well known and understood as ‘the algebraic sum of (1) the market value of the rights exercised in consumption and (2) the change in the value of the store of property rights between the begin- ning and the end of the period in question’. 55 In other words, a person’s income to be taxed is their annual consumption plus their annual sav- ings. Although arguably the normative tax base can be better described as the comprehensive tax base with amendments to take into account struc- tural provisions. Surrey regarded the determination of a normative model as requiring a consideration of a variety of questions going to the fundamental income tax structure.

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  Defensible Spending for Public Schools

  • Arvid J. Burke(Author)
  • 2019(Publication Date)
  • Columbia University Press

    (Publisher)

  There are wide variations among states and nations in the relationship of public spending to total income. There are also wide variations within the same states over long periods of time. 42 There are practical (perhaps temporary) limits, nevertheless, to governmental spending. In a democracy the willingness of the people to pay taxes is a most important element. After the First World War there was a reaction against the high taxes of the war years. During and after the depression, unwillingness to support government in the ac-customed manner led to reductions and curtailments in a number of states and localities. In certain cities the people have been more will-ing to support their schools than their municipal administration. An-other practical limit is the size of the supporting unit. Small or poor nations or units of government reach the limits of their public or pri-vate spending capacity sooner than large or wealthy ones. A third 40 See Shultz, op. cit., p. 25. 41 See Lutz, op. cit., p. 24. 42 See pp. 64 ff. 28 G O V E R N M E N T A L S P E N D I N G consideration is the nature and efficiency of the tax or tax system through which a government gets its revenues. Revenues from a given tax may dry up because of economic, political, or other changes, for example, liquor taxes after prohibition. The tax itself may destroy its revenue source. As shown by Morrison, 43 general property taxes on farm land may exceed cash income; and those on city real estate may so reduce returns on capital invested or sale prices of property as to place an undue hardship on property owners. A final factor limiting current expenditures is past expenditures financed by borrowing, that is, the cost of debt service.

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