Government Spending

7 Key excerpts on "Government Spending"

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  eBook - ePub

  Economic Policy, Financial Markets, And Economic Growth

  • Benjamin Zycher(Author)
  • 2019(Publication Date)
  • Taylor & Francis

    (Publisher)

  Government Spending and Taxation Passage contains an image

  Introduction

  The consumption and reallocation of resources perhaps constitute the very essence of government, achieved in the main through its powers of taxation and spending. That such fiscal activity by the public sector yields both benefits and costs is beyond doubt, but the measurement of those effects remains difficult, despite much research effort over many years. This difficulty does not reduce the need for qualitative and quantitative analysis of the benefits and costs of fiscal activity, as government consumes and redirects a substantial proportion of national output in most of the world.

  But for market economies, in which prices are assumed to reflect the value and cost of resources, the value of government output in national accounts generally is measured as (or is assumed to be equal to) the cost of the inputs used by government; those costs usually do not reflect secondary but important effects of taxation and spending. If government is “too big”-that is, if aggregate wealth would be increased were some resources shifted away from government back to the private sector-then the national accounts are likely to overstate the value of Government Spending. And the secondary effects of fiscal activity imply that the government budget would understate the true economic cost of taxation and spending.

  Notwithstanding the existence of a vast literature on the demand and cost of public services, much work remains to be done in terms of both conceptual and empirical analysis of public sector spending and taxation, and attendant effects upon aggregate economic well-being. William A. Niskanen reports empirical findings on the effect of several types of fiscal activities upon three alternative measures of economic growth. He finds that Government Spending increases real GNP significantly, whereas taxes and deficit spending (i.e., future taxation) have significant negative effects. Interestingly, Niskanen finds that the economic benefits of nondefense spending not used for transfer payments-loosely, public sector nondefense investment-may be greater than the economic costs of the taxes and debt needed to finance the additional spending, at least as the benefits are measured in his econometric analysis. One possible problem with this finding is that some or much government investment could be undertaken by the private sector, and it is at least plausible that costs would fall. If that is true, it may suggest that the actual net effect of some Government Spending upon growth and productivity is negative, but not captured by the data.

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  Macroeconomic Theory

  A Dynamic General Equilibrium Approach - Second Edition

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

    (Publisher)

  Many states also provide goods and services that are not pure public goods. For these government-supplied goods one person’s consumption may well be at the cost of less consumption of these (or of other goods) by someone else. Examples are government-provided education, health, and some forms of transport. These goods and services are often provided by the state on the grounds of equity or efficiency due to economies of scale. Frequently, their public provision is a source of political controversy. Apart from government expenditures on goods and services, there are also government transfers arising from social security benefits, such as unemployment compensation, family benefits, and state pensions.

  Most people take it for granted that government expenditures form a substantial proportion of GDP, yet this is a relatively recent phenomenon, as can be seen from 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.

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  Efficiency, Equality and Public Policy

  With A Case for Higher Public Spending

  • Y. Ng(Author)
  • 2000(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  8 A Case for Higher Public Spending Co-author: Siang Ng 105 I like to pay taxes. With them I buy civilization. Justice Holmes in Eisenstein, 1961, p.5 Saunders (1993) shows that the share of public expenditure reached a peak in most countries in early to mid-1980s, stabilised and then declined. (See also Bohl, 1996 and Payne and Ewing, 1996 on inter- national evidence on the Wagner’s law on the increase in the share of the public sector.) The decline is sharper in terms of the real size of the public sector due to a higher relative price; see the end of Section 8.2 below. This decline is associated with the worldwide movement towards privatisation and the use of the market mechanism. While accepting that there are some valid reasons (such as the inefficiency of the public sector) underlying this movement, this chapter discusses some neglected factors that provide some offsetting considerations. Before doing so, the basic theory on the appropriate size of public spending on public goods and some related considerations are reviewed. 8.1 Some simple theories of Government Spending 8.1.1 Government Spending as providing public goods It is clear that a major part of the spending of most governments is on items (e.g. the maintenance of law and order, defence, etc.) that are uncontroversially public goods in the Samuelsonian sense (non- rivalness in consumption). Others are more controversial. A major part of Government Spending is paying the public employees. However, if these employees are largely necessary for the government to perform the functions of providing public goods, this part of government spend- ing may also be regarded as the cost of providing public goods. In many countries, governments spend a lot on transfer payments such as old- age pensions and unemployment benefits. These are regarded as redis- tributive spending rather than spending on public goods. While these items certainly have redistributive effects, they also have some public- goods aspect.

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  The Distributional Effects of Government Spending and Taxation

  • D. Papadimitriou(Author)
  • 2006(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Our aim is to account for the flows of purchasing power and products between the government sector and house- hold sector during a given accounting period in an ex post fashion. We take the individual household as the unit of analysis and build estimates of how much the government spends for each household and how much the government takes from each household in taxes. In assessing the effect of net government expenditure on well-being, it is insufficient to examine only the distribution of net government expenditure. As has been observed, ultimately the result of the government's taxation and spending policies is to affect the distribution of economic well-being that prevails after the effects of these policies have been taken into account (Lambert and Pfahler, 1988, p. 198). For the purposes of this study, economic well-being is defined as the magnitude of the command or access exercised by members of a house- hold over the products produced (excluding self-provisioning by house- holds) in a modern market economy during a given period of time. 3 In all modern economies, the state intervenes in determining the household's command over commodities. Apart from cash transfers, noncash transfers from the government to the households constitute government payments for commodities on behalf of the recipients. Through the system of direct (including negative income tax such as the Earned Income Tax Credit) and indirect taxes, the state affects the command that the household can exercise over commodities. Admittedly, commodities only form a portion, though a critical one, of the entire set of products produced and distributed in an economy. Apart from influencing the command over commodities, the state also plays a crucial role in the direct provisioning of products (as in the case of schooling and highways). Government expenditures considered here consists of cash transfers, noncash transfers and public consumption.

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  Microeconomics

  Private and Public Choice

  • James Gwartney, Richard Stroup, Russell Sobel, David Macpherson(Authors)
  • 2017(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  economy. The size of government has grown substan- tially over the past 85 years. Measured as a share of GDP, total Government Spending rose from less than 10 percent in 1930 to a little more than 30 percent in 1980 and nearly 40 per- cent in the aftermath of the 2008 recession. Approximately three-fifths of the spending by government now takes place at the federal level. Federal expenditures on just four things— (1) income transfers (including Social Security and other income-security programs), (2) health care, (3) national defense, and (4) net interest on the national debt—accounted for 88 percent of federal spending in 2015. (See Chapter 6, Exhibit 2.) This means that expenditures on everything else—the federal courts, national parks, highways, education, job training, agriculture, energy, natural resources, federal law enforcement, and numerous other programs—were less than 14 percent of the federal budget. Major spending catego- ries at the state and local level include education, public welfare and health, transportation and highways, utilities, and law enforcement. ST01-1a FEDERAL SPENDING PER PERSON, 1792–2015 Article 1, Section 8, of the U.S. Constitution outlined a limited set of functions that the federal government was authorized to perform. These included the authority to raise up an army and navy, establish a system of weights and measures, issue patents and copyrights, operate the post office, and regulate the value of money that it issued. Beyond this, the federal government was not authorized to do much else. The founders of the United States were skeptical of governmental powers, and they sought to limit those powers, particularly those at the federal level. (See the quotation by Thomas Jefferson at the beginning of this feature.) During the United States’ first 125 years, the constitutional limitations worked pretty much as planned; the economic role of the federal government was quite limited, and its expenditures were modest.

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  Public Spending and the Role of the State

  History, Performance, Risk and Remedies

  • Ludger Schuknecht(Author)
  • 2020(Publication Date)
  • Cambridge University Press

    (Publisher)

  The Anglo-Saxon countries tended to have smaller governments, but there were periods when this was not the case (e.g. Ireland and the United Kingdom around 1980). The current and former emerging economies of Asia mostly feature governments on the very small side. The overall variation is enormous and public expenditure ratios now range from about 20% to well over 50% of GDP. Chapter 2 looks in more depth at the pattern of Government Spending across different categories before Chapter 3 turns to the financing of gov- ernment. This will prepare us for the later discussion of ‘value for money’ from Government Spending, and of the risks and challenges for the future in Parts II and III. The Growth of Government Expenditure over the Past 150 Years 35 2 The Composition of Expenditure Europe needs to be competitive and we also need to be competitive if we wish to remain an interesting partner. Angela Merkel Politicians are the same all over. They promise to build a bridge even where there is no river. Nikita Khrushchev Highlights The history of the composition of Government Spending is both complex and fascinating. Although government priorities have changed over the past 150 years, social spending has been the biggest ‘winner’ (Figure 2.1). In the late nineteenth century, public spending focussed on public administration, investment, debt service and the military. In the following decades until about 1960, such growth focussed on developing public services and social safety nets, taking advantage of falling military spending after the two world wars. The following sixty years saw mostly further increases in social expenditure, especially on pensions, health and long-term care. Public spending on ‘goods and services’ has always averaged nearly half of total expenditure. By contrast, social expenditure has grown from less than 10% a century ago to 55% in 2017.

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  Defensible Spending for Public Schools

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

    (Publisher)

  CHAPTER II GOVERNMENTAL SPENDING AND PUBLIC SCHOOL EXPENDITURES ANALYZING GOVERNMENTAL EXPENDITURES Difficulties of analysis. The analysis of total governmental expenditures into allotments for various purposes is necessary for understanding, appraisal, and policy formulation. The amount which can be spent for public schools depends in part upon expenditures for other governmental purposes and vice versa. For this reason local, state, and Federal analyses of governmental spending have been prepared. On the basis of such comparisons public school expenditures and other governmental expenditures have been defended and attacked. In-creases or decreases have been urged, using such evidence. Yet, there are certain limitations of the data which often make such generaliza-tions invalid. The analysis and comparison of expenditures for various govern-mental purposes involves three very serious limitations. In the first place, most governmental activities serve several purposes and all classifications are arbitrary. Secondly, most services are provided by overlapping units of government, or more than one unit participates in their financing. And finally, the compilation of statistics is made difficult and inexact owing to differences in definitions, accounting, records, and reports. There are few governmental activities which promote only one pur-pose. Most of them have multiple objectives, many of which are the same as those of some other governmental service. Public education, hospitals, public health, sanitation, water supply, recreation, and public assistance to the disabled and unemployed are all classified as separate activities, but they all promote health. Education, police protection, fire protection, traffic control, highways, correction, health, sanitation, water supply, and public assistance, all help pro-tect life.

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