Government Spending: Decoding Government Spending, Mastering Fiscal Choices for a Better Tomorrow

By Fouad Sabry

What is Government Spending

Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual or collective needs 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. These two types of government spending, on final consumption and on gross capital formation, together constitute one of the major components of gross domestic product.

How you will benefit

(I) Insights, and validations about the following topics:

Chapter 1: Government spending

Chapter 2: Economy of Eritrea

Chapter 3: Deficit spending

Chapter 4: Government budget balance

Chapter 5: National debt of the United States

Chapter 6: Tax cut

Chapter 7: Consumer spending

Chapter 8: Austerity

Chapter 9: Crowding out (economics)

Chapter 10: Public expenditure

Chapter 11: Economy of Wales

Chapter 12: Fiscal policy of the United States

Chapter 13: United States federal budget

Chapter 14: Government budget

Chapter 15: Subsidies in India

Chapter 16: 2009 Australian federal budget

Chapter 17: Expenditures in the United States federal budget

Chapter 18: Political debates about the United States federal budget

Chapter 19: Deficit reduction in the United States

Chapter 20: Federal budget of Switzerland

Chapter 21: Government spending in the United States

(II) Answering the public top questions about government spending.

(III) Real world examples for the usage of government spending in many fields.

Who this book is for

Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of government spending.

• Language: English
• Publisher: One Billion Knowledgeable
• Release date: Jan 15, 2024

Book preview

Chapter 1: Government spending

Government spending includes all consumption, investments, and transfer payments. In national income accounting, government final consumption expenditure is the acquisition of goods and services for current use, directly satisfying the individual or collective needs of the community. Government investment refers to the acquisition of future-benefiting goods and services by the government, such as infrastructure investment or research spending (government gross capital formation). These two types of government spending, on final consumption and on gross capital formation, make up one of the most important elements of gross domestic product.

Government spending can be financed through borrowing, taxes, customs duties, the sale or lease of natural resources, and various fees such as national park entrance fees and licensing fees. Government spending changes are a major component of fiscal policy used to stabilize the macroeconomic business cycle.

The Market for Capital (the Loanable Funds Market) and the Crowding Out Effect.

Increased government deficit spending crowds out private investment by raising interest rates and decreasing the amount of capital available to the private sector.

Government spending can be an effective economic policy instrument. Fiscal policy is the use of government spending and/or taxation to affect the economy.

Government final consumption expenditure refers to government spending on goods and services for current use to directly satisfy individual or collective needs of community members (GFCE.) It is a purchase from the use of income account of the national accounts for goods and services directly satisfying individual (individual consumption) or collective (community consumption) needs (collective consumption). GFCE consists of the value of the goods and services produced by the government other than own-account capital formation and sales, as well as the value of government purchases of market-produced goods that are supplied to households as social transfers in kind without transformation.

Government consumption consists of purchases of goods and services by the government.

Among such examples are road and infrastructure repairs, national defence, schools, healthcare, and government workers’ salaries.

Publicly-serving investments in the sciences and strategic technological innovations.

Transfer payments are payments made by the government to individuals. Such payments include Old Age Security payments, Employment Insurance benefits, veteran and civil service pensions, foreign aid payments, and payments for social assistance. In this category are also included business subsidies.

Interest payments are the interest paid on government bonds, such as Savings Bonds and Treasury Bills, to their holders.

The United States spends significantly more on national defense than other nations. The United States, for example, approved a budget of $686,1 billion for discretionary military spending in 2019. The table below shows the top 10 countries with the highest military expenditures in 2015, the most recent year for which data is publicly available. According to the table, the United States spent nearly three times as much on its military as China, the nation with the second-highest military expenditures. In 2016, eight of the top ten countries spent less than $100 billion on their military budgets, dwarfed by the United States' $600 billion expenditure. In 2022, the omnibus spending bill added $42 billion to the military budget, further establishing the United States as the world's largest defense spender.

91 percent of Australians, according to Research Australia, believe 'improving hospitals and the health system' should be the government's top spending priority.

Additionally, crowding 'in' occurs An increase of 10 percent in government R&D funding decreased private R&D spending by 3 percent... The average cost of public funds in Australia is estimated to be between $1.20 and $1.30 per dollar raised (Robson, 2005). The marginal cost is probably greater, but estimates vary widely based on the increased tax..

From 2013 to 2017, the total investment in medical and health research and development (R&D) in the United States increased by 27 percent, led by the private sector and the federal government. In 2017, the industry accounted for 67 percent of total expenditures, while the federal government accounted for 22 percent. In 2017, the National Institute of Health (NIH) was responsible for $32.4 billion, or 82.1 percent, of federal spending on medical and health research.

Also, academic and research institutions, such as colleges and universities, independent research (IRIs), and independent hospital medical research centres, increased spending on medical and health R&D in 2017, devoting more than $14.2 billion of their own funds (endowment, donations, etc.) to the field. Although other funding sources – foundations, state and local government, voluntary health associations, and professional societies – accounted for 3.7% of total medical and health R&D expenditures, the majority of funding came from the federal government.

On the contrary, global health spending continues to increase and rise rapidly – to US$7.8 trillion in 2017 or about 10% of GDP and $1.80 per capita – up from US£7.6 trillion in 2016.

In addition, 605 percent of these expenditures were public, while 40 percent were private, Donor funding represents less than 0.2% of the total, despite the fact that health spending in real terms has increased by 3.79 percent over the past year while the global GDP has increased by 3.0 percent.

The figure illustrates that, according to the World Health Organization (WHO), health expenditures in low-income countries increased by 7.8 percent annually between 2000 and 2017 while their economies grew by 6.4 percent. However, health expenditures in middle-income economies grew by more than 6 percent, while average annual growth in high-income countries was 3.5 percent, roughly double the rate of economic growth. In contrast, health expenditures in high-income countries continue to account for the largest proportion of global expenditures (approximately 81 percent) despite covering only 16 percent of the world's population; this proportion has decreased from 87 percent in 2000. India and China are primarily responsible for this shift in global healthcare spending, as they have moved into higher-income groups. In addition, slightly more than 40 percent of the world's population resided in low-income countries, which has decreased to 10 percent. In addition, significant spending growth occurred in upper-middle-income economies, where the population share has more than doubled over the period, and where the proportion of global health expenditures has nearly doubled as a result of China's and India's enormous population growth. Sadly, every other spending share income group had