Government Spending

8 Important Economic Statistics #8

Definition

There are three types of government spending:

1. Consumption is the purchase of goods and services for use by the government.  (The government will purchase items such as food and clothing for their various needs, including the military.) Consumption is a major component of GDP.
2. Investment is the money the government spends on projects from which the country will hopefully reap future benefits.  This would include research, infrastructure and education spending. Like consumption, government investment is a major component of GDP.
3. Transfer Payments are payments made to the citizenry by the federal government. These are through social benefit programs. (A good example in the United States would be Social Security.) Since a transfer payment is simply a movement of money, it is not included in GDP.

Each year, the government publishes the Statistical Abstract of the United States. The data in this abstract is compiled from the US Census Bureau and The Bureau of Economic Analysis among other federal agencies. Each year, the abstract contains an overview of government spending.

Using the Statistic

Simply looking at government spending alone is not necessarily helpful. Generally, the most useful use of government spending data is as a percentage of GDP. (For 2009, 44.72% of GDP was government spending.) This allows us to compare our spending with those of other nations in the world, and provides us a handy benchmark to compare our own government spending historically.

Historical Changes


Until the Great Depression, government spending as a percentage of GDP in the United States was relatively low. There was a spike to account for the increased spending needed to fund the first World War, but levels came back down following the war. With the advent of the New Deal, and such government programs as social security, government spending as a percentage of GDP began to increase at a steady rate year after year. (There was a huge spike of government spending for World War II, and a smaller spike recently for the stimulus package passed earlier this year.)

Further Reading

• Naked Economics
• Wikipedia
• US Census Bureau
• USA Spending
• US Government Spending

Previous Entries in this Series: GDP, Unemployment Rate, Poverty Rate, Inflation Rate, Gini Index, The Dow Jones Industrial Average, The S&P 500