Government spending or expenditure includes all government consumption, investment, and transfer payments. In
national income accounting
A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), Gross national income (GNI), net national income (NNI), and adjusted natio ...
, 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 (government
gross capital formation). 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.
Spending by a government that issues its own currency is nominally self-financing. However, under a full employment assumption, to acquire resources produced by its population without potential inflationary pressures, removal of purchasing power must occur via
government borrowing,
taxes
A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax co ...
,
custom duties, the sale or lease of natural resources, and various fees like national park entry fees or licensing fees. When these sovereign governments choose to temporarily remove spent money by issuing securities in its place, they
pay interest on the money borrowed. Changes in government spending are a major component of
fiscal policy
In economics and political science, fiscal policy is the use of government revenue collection ( taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variab ...
used to stabilize the macroeconomic
business cycle
Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, governmen ...
.
Public expenditure is spending made by the government of a country on collective or individual needs and wants of
public goods
In economics, a public good (also referred to as a social good or collective good)Oakland, W. H. (1987). Theory of public goods. In Handbook of public economics (Vol. 2, pp. 485–535). Elsevier. is a goods, commodity, product or service that ...
and
public service
A public service or service of general (economic) interest is any service intended to address the needs of aggregate members of a community, whether provided directly by a public sector agency, via public financing available to private busin ...
s, such as pension, healthcare, security,
education subsidies, emergency services, infrastructure, etc. Until the 19th century, public expenditure was limited due to
laissez faire
''Laissez-faire'' ( , from , ) is a type of economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies or regulations). As a system of thought, ''laissez-faire'' ...
philosophies. In the 20th century,
John Maynard Keynes
John Maynard Keynes, 1st Baron Keynes ( ; 5 June 1883 – 21 April 1946), was an English economist and philosopher whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originall ...
argued that the role of public expenditure was pivotal in determining levels of income and
distribution Distribution may refer to:
Mathematics
*Distribution (mathematics), generalized functions used to formulate solutions of partial differential equations
*Probability distribution, the probability of a particular value or value range of a varia ...
in the economy. Public expenditure plays an important role in the economy as it establishes fiscal policy and provides public goods and services for households and firms.
Theories of public expenditure
Several theories of taxation exist in
public economics
Public economics ''(or economics of the public sector)'' is the study of government policy through the lens of economic efficiency and Equity (economics), equity. Public economics builds on the theory of welfare economics and is ultimately used as ...
. Governments can be separated into two distinct types when it comes to their fiscal and monetary sovereignty: currency-issuers and currency-users. Currency-users at all levels (national, regional and local) need to raise revenue from a variety of sources to finance public-sector expenditures. They are not in control of the currency that their jurisdiction transacts in and so are restricted by what revenue they can raise prior to executing spending policies. Currency-issuing governments have no such nominal fiscal restriction. They have an infinite fiscal capacity in that, in principle, they can issue as much of their own currency as they like. However, real resources and productive capacity within an economy are finite. It is the acquisition of these real resources for the public purpose and a non-inflationary bias in government policy-making that places the constraint on currency-issuing government spending, rather than nominal financing from prior revenue collection.
The details of taxation are guided by two principles: who will benefit, and who can pay. Public expenditure means the expenditure on the developmental and non-developmental activity such as construction of roadways and dams, and other activity.
Rules or principles that govern the expenditure policy of the government are called "canons of public expenditure". Economist George Findlay Shirras laid down the following four canons of public expenditure, although some are understood not to be required:
#Canon of benefit – public spending must be done in a manner that it brings greatest social benefits.
#Canon of economy – it says that economy does not mean miserliness. Public expenditure must be made productively and efficiently.
#Canon of sanction – public spending should not be made without sanction of an appropriate authority.
#Canon of surplus – public revenue should exceed government expenditure, this avoiding a
deficit. Government must prepare a budget to create a surplus.
Three other canons are:
#Canon of elasticity – it says there should be enough scope in expenditure policy.government should be able to increase or decrease it according to the period.
#Canon of productivity – public expenditure should encourage production efficiency of the economy.
#Canon of equitable distribution – expenditure policy should minimize inequalities and it should be designed in a way to benefit poorer sections.
Principle of maximum social advantage
The criteria and pre-conditions for arriving at this solution are collectively referred to as the principle of maximum social advantage.
Taxation (government revenue) and government expenditure are the two tools. Neither of excess is good for the society, it has to be balanced to achieve maximum social benefit. Dalton called this principle as "Maximum Social Advantage" and
Pigou termed it as "Maximum Aggregate Welfare".
''Dalton's principle of maximum social advantage'' – maximum satisfaction should be yield by striking a balance between public revenue and expenditure by the government. Economic welfare is achieved when
marginal utility
Marginal utility, in mainstream economics, describes the change in ''utility'' (pleasure or satisfaction resulting from the consumption) of one unit of a good or service. Marginal utility can be positive, negative, or zero. Negative marginal utilit ...
of expenditure = marginal disutility of taxation. He explains this principle with reference to
* ''Maximum social benefit (MSB)''
* ''Maximum social sacrifice (MSS)''
It was introduced by Swedish Economist "
Erik Lindahl in 1919". According to his theory, determination of public expenditure and taxation will happen on the basis of public preferences which they will reveal themselves. Cost of supplying a good will be taken up by the people. The tax that they will pay will be revealed by them according to their capacities.
Macroeconomic fiscal policy

Government spending can be a useful economic policy tool for governments.
Fiscal policy
In economics and political science, fiscal policy is the use of government revenue collection ( taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variab ...
can be defined as the use of government spending and/or taxation as a mechanism to influence an economy.
There are two types of fiscal policy: expansionary fiscal policy, and contractionary fiscal policy. Expansionary fiscal policy is an increase in government spending or a decrease in taxation, while contractionary fiscal policy is a decrease in government spending or an increase in taxes. Expansionary fiscal policy can be used by governments to stimulate the economy during a
recession
In economics, a recession is a business cycle contraction that occurs when there is a period of broad decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be tr ...
. For example, an increase in government spending directly increases demand for goods and services, which can help increase
output
Output may refer to:
* The information produced by a computer, see Input/output
* An output state of a system, see state (computer science)
* Output (economics), the amount of goods and services produced
** Gross output in economics, the valu ...
and employment. On the other hand, contractionary fiscal policy can be used by governments to cool down the economy during an economic boom. A decrease in government spending or an increase in taxes can help reduce inflationary pressures within the economy.
During economic downturns, in the short run, government spending can be changed either via
automatic stabilization
In macroeconomics, automatic stabilizers are features of the structure of modern government budgets, particularly income taxes and welfare spending, that act to damp out fluctuations in real GDP.
The size of the government budget deficit tends to ...
or discretionary stabilization. Automatic stabilization is when existing policies automatically change government spending or taxes in response to economic changes, without the additional passage of laws.
A primary example of an
automatic stabilizer
In macroeconomics, automatic stabilizers are features of the structure of modern government budgets, particularly income taxes and Welfare (financial aid), welfare spending, that act to damp out fluctuations in real GDP.
The size of the government ...
is
unemployment insurance
Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is the proportion of people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work du ...
or an employment guarantee, which provide financial assistance to unemployed workers or direct wages to recently unemployed workers, respectively. Discretionary stabilization is when a government takes actions to change government spending or taxes in direct response to changes in the economy. For instance, a government may decide to increase government spending as a result of a recession.
With discretionary stabilization, most governments must pass a new law to make changes in government spending.
John Maynard Keynes
John Maynard Keynes, 1st Baron Keynes ( ; 5 June 1883 – 21 April 1946), was an English economist and philosopher whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originall ...
was one of the first economists to advocate for government
deficit spending
Within the budgetary process, deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit, the opposite of budget surplus. The term may be applied to the budg ...
as part of the fiscal policy response to an
economic contraction. According to
Keynesian economics
Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomics, macroeconomic theories and Economic model, models of how aggregate demand (total spending in the economy) strongl ...
, increased government spending raises
aggregate demand
In economics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This is the ...
and increases
consumption, which leads to increased production and faster recovery from recessions.
Classical economists
Classical economics, also known as the classical school of economics, or classical political economy, is a school of thought in political economy that flourished, primarily in Britain, in the late 18th and early-to-mid 19th century. It includes ...
, on the other hand, believe that increased government spending exacerbates an
economic contraction by shifting resources from the private sector, which they consider productive, to the public sector, which they consider unproductive.
In economics, the potential "shifting" in resources from the
private sector
The private sector is the part of the economy which is owned by private groups, usually as a means of establishment for profit or non profit, rather than being owned by the government.
Employment
The private sector employs most of the workfo ...
to the
public sector
The public sector, also called the state sector, is the part of the economy composed of both public services and public enterprises. Public sectors include the public goods and governmental services such as the military, law enforcement, pu ...
as a result of an increase in government
deficit spending
Within the budgetary process, deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit, the opposite of budget surplus. The term may be applied to the budg ...
is called
crowding out.
The figure to the right depicts an outdated theory for the market for capital, otherwise known as the market for
loanable funds In economics, the loanable funds doctrine is a theory of the market interest rate. According to this approach, the interest rate is determined by the demand for and supply of loanable funds. The term ''loanable funds'' includes all forms of credit, ...
. The downward sloping
demand curve
A demand curve is a graph depicting the inverse demand function, a relationship between the price of a certain commodity (the ''y''-axis) and the quantity of that commodity that is demanded at that price (the ''x''-axis). Demand curves can be us ...
D1 represents demand for private capital by firms and investors, and the upward sloping
supply curve
In economics, supply is the amount of a resource that firms, producers, labourers, providers of financial assets, or other economic agents are willing and able to provide to the marketplace or to an individual. Supply can be in produced goods, ...
S1 represents savings by private individuals. The initial equilibrium in this market is represented by point A, where the equilibrium quantity of capital is K1 and the equilibrium interest rate is R1. In this theory, if the government increases
deficit spending
Within the budgetary process, deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit, the opposite of budget surplus. The term may be applied to the budg ...
, it will borrow money from the private
capital market
A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers ...
and reduce the supply of savings to S2. The new equilibrium is at point B, where the interest rate has increased to R2 and the quantity of capital available to the private sector has decreased to K2. The government has essentially made borrowing more expensive and has taken away savings from the market, which "crowds out" some private investment. The crowding out of private investment could limit the economic growth from the initial increase in government spending.
A closer understanding of government fiscal operations contradicts the above loanable funds theory. In fact, in the first instance and all else equal, increased government deficit spending ''increases'' liquidity in the banking system, thereby pushing down on interest rates. Government borrowing is the act of swapping the excess bank reserves created via the increased deficit spending with Treasury securities, thus draining this excess liquidity back down to pre-spending levels. There is no "loanable funds" pool of currency in reality. Crowding out only refers to the shift of real resources from private to public use, not the crowding out of nominal private investment. Government deficit spending increases the net financial assets available to the non-government sector.
Composition
Public expenditure can be divided into COFOG (classification of the functions of government) categories. Those categories are:
*
Social protection
Social protection, as defined by the United Nations Research Institute for Social Development, is concerned with preventing, managing, and overcoming situations that adversely affect people's well-being. Social protection consists of policies and ...
: pensions,
subsidies for family and children,
unemployment subsidies, R&D (Research and Development) on social protection.
* Health
:
public health services,
medical products,
medical appliances and equipment,
hospital services,
R&D on healthcare.
*
General Public Services
:
executive and legislative organs, financial and fiscal affairs,
external affairs,
foreign economic aid,
public debt transactions, R&D related to general public services
* Education
:
pre-primary, primary, secondary, tertiary education, R&D on education etc. See also
List of countries by spending on education as percentage of government spending.
* Economic Affairs
: general economic, agriculture, fuel and energy, commercial and
labour affairs, forestry, fishing and hunting, mining, manufacturing, transport, communication etc.
* Public order and safety/emergency services
: police, fire-protection services, emergency medical services, law courts, prisons, etc.
* Defence
: Military defence,
civil defence
Civil defense or civil protection is an effort to protect the citizens of a state (generally non-combatants) from human-made and natural disasters. It uses the principles of emergency management: prevention, mitigation, preparation, response, ...
, foreign military aid.
* Recreation, culture and religion
: Recreational and sporting services,
cultural services, broadcasting and publishing services, religious services etc.
* Environmental protection
: waste management, pollution abatement, protection of biodiversity and landscape etc.
* Housing and community services
: Housing development, community amenities,
water supply
Water supply is the provision of water by public utilities, commercial organisations, community endeavors or by individuals, usually via a system of pumps and pipes. Public water supply systems are crucial to properly functioning societies. Th ...
, street lighting etc.
Final consumption
Government spending on goods and services for current use to directly satisfy individual or collective needs of the members of the community is called
government final consumption expenditure (GFCE) It is a purchase from the national accounts "use of income account" for goods and services directly satisfying of individual needs (''individual consumption'') or collective needs of members of the community (''collective consumption''). GFCE consists of the value of the goods and services produced by the government itself other than own-account
capital formation
Capital formation is a concept used in macroeconomics, national accounts and financial economics. Occasionally it is also used in corporate accounts. It can be defined in three ways:
*It is a specific statistical concept, also known as net invest ...
and sales and of purchases by the government of goods and services produced by market producers that are supplied to households—without any transformation—as "social transfers" in kind.
Government spending or government expenditure can be divided into three primary groups, government consumption, transfer payments, and interest payments.
# Government consumption refers to government purchases of goods and services. Examples include road and infrastructure repairs, national defence, schools, healthcare, and government workers’ salaries.
# Investments in sciences and strategic technological innovations to serve the public needs.
# Transfer payments are government payments to individuals. Such payments are made without the exchange of good or services, for example old-age security payments, employment insurance benefits, veteran and civil service pensions, foreign aid, and social assistance payments. Subsidies to businesses are also included in this category.
# Interest payments are the interest paid to the holders of government bonds, such as
saving bonds and
treasury bills
United States Treasury securities, also called Treasuries or Treasurys, are government debt instruments issued by the United States Department of the Treasury to finance government spending as a supplement to taxation. Since 2012, the U.S. ...
, including securities held by the government's central bank. The interest paid out to the central bank on these securities effectively is interest paid out on reserve balances deposited with the central bank.
National defense spending
Stated reasons for defense spending include
deterrence and active military operations.
Factors of recent defense spending increases include
Russian invasion of Ukraine
On 24 February 2022, , starting the largest and deadliest war in Europe since World War II, in a major escalation of the Russo-Ukrainian War, conflict between the two countries which began in 2014. The fighting has caused hundreds of thou ...
and related deteriorating security situation.
The countries with highest total military spending are USA and China, and the countries with highest military spending as percentage of GDP in 2023 among top 20 military spenders are Ukraine, Algeria, Saudi Arabia and Russia.
Top 20 countries with the highest military spending 2023, where the values for China, Russia and Saudi Arabia are estimated:
''
Some sources say that
Russia
Russia, or the Russian Federation, is a country spanning Eastern Europe and North Asia. It is the list of countries and dependencies by area, largest country in the world, and extends across Time in Russia, eleven time zones, sharing Borders ...
n and Chinese military spending are actually far higher.
Healthcare and medical research
Research Australia found 91% of Australians think 'improving hospitals and the health system' should be the Australian Government's first spending priority.
Crowding 'in' also happens in university life science research Subsidies, funding and government business or projects like this are often justified on the basis of their positive return on investment. Life science crowding in contrasts with crowding out in public funding of research more widely: "10% increase in government R&D funding reduced private R&D expenditure by 3%...In Australia, the average cost of public funds is estimated to be $1.20 and $1.30 for each dollar raised (Robson, 2005). The marginal cost is probably higher, but estimates differ widely depending on the tax that is increased".
In the US the total investment in medical and health research and development (R&D) in the US had grown by 27% over the five years from 2013 to 2017, and it is led by industry and the federal government. However, the industry accounted for 67% of total spending in 2017, followed by the federal government at 22%. According to the
National Institute of Health
The National Institutes of Health (NIH) is the primary agency of the United States government responsible for biomedical and public health research. It was founded in 1887 and is part of the United States Department of Health and Human Servic ...
(NIH) accounted for the lion's share of federal spending in medical and health research in 2017 was $32.4 billion or 82.1%.
Also, academic and research institutions, this includes colleges, and universities, independent research (IRIs), and independent hospital medical research centres also increased spending, dedicating more than $14.2 billion of their own funds (endowment, donations etc.) to medical and health R&D in 2017. 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 expenditure.
On the other hand, 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, about 605 of this spending was public and 40% private, with donor funding representing less than 0.2% of the total although the health spending in real terms has risen by 3.79% in a year while global GDP had grown by 3.0%.
According to the World Health Organisation (WHO), the increase in health spending in low-income countries, and it rose by 7.8% a year between 2000 and 2017, while their economies grew by 6.4%, it is explained in the figure. However, the middle-income economies health spending grew more than 6%, and average annual growth in high-income countries was 3.5%, which is about twice as fast as economic growth. In contrast, health spending by the high-income countries continues to represent to be the largest share of global spending, which is about 81%, despite it covers only 16% of world's population; although it down from 87% in 2000. The primary drivers of this change in global spending on healthcare are India and China, which they moved to higher-income groups. Furthermore, just over 40% of the world population lived in low-income countries, which is now dropped to 10%. Moreover, significant spending increments were in upper-middle-income economies, where population share has more than doubled over the period, and share of global health spending nearly also doubled due to China and India's vast population joining that group. Unfortunately, all other spending share income groups had declined.
From the continent view, North America, Western Europe, and Oceanic countries have the highest levels of spending, and West Central Asia, and East Africa the lowest, which is closely followed by South Asia, it is explained in the figure.
It is also true that fast economic growth is associated with increased health spending and sustained rapid economic growth between 2000 and 2017. Even more, fast economic growth which is generally associated with the higher government revenues and health spending is mostly located in Asia such as China, India and Indonesia followed by the Middle East and Latin America. In these countries, the real health spending per capita grew by 2.2 times and increased by 0.6 percentage point as per a share of GDP from 2000 to 2017.
Gross fixed capital formation
Government acquisition intended to create future benefits, such as infrastructure investment or research spending, is called gross fixed capital formation, or government investment, which usually is the largest part of the government.
["Gross capital formation"]
''Statistics Explained'' European Union Statistics Directorate, European Commission Acquisition of goods and services is made through production by the government (using the government's labour force, fixed assets and purchased goods and services for
intermediate consumption
Intermediate consumption (also called "intermediate expenditure") is an economic concept used in national accounts, such as the United Nations System of National Accounts (UNSNA), the US National Income and Product Accounts (NIPA) and the Europe ...
) or through purchases of goods and services from market producers. In
economic theory
Economics () is a behavioral science that studies the production, distribution, and consumption of goods and services.
Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...
or in
macroeconomics
Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output (econ ...
, investment is the amount purchased of
goods
In economics, goods are anything that is good, usually in the sense that it provides welfare or utility to someone. Alan V. Deardorff, 2006. ''Terms Of Trade: Glossary of International Economics'', World Scientific. Online version: Deardorffs ...
which are not consumed but are to be used for future production (i.e.
capital
Capital and its variations may refer to:
Common uses
* Capital city, a municipality of primary status
** Capital region, a metropolitan region containing the capital
** List of national capitals
* Capital letter, an upper-case letter
Econom ...
). Examples include railroad or factory construction.
Infrastructure spending is considered government investment because it will usually save money in the long run, and thereby reduce the
net present value
The net present value (NPV) or net present worth (NPW) is a way of measuring the value of an asset that has cashflow by adding up the present value of all the future cash flows that asset will generate. The present value of a cash flow depends on ...
of government liabilities.
Spending on
physical infrastructure in the U.S. returns an average of about $1.92 for each $1.00 spent on nonresidential construction because it is almost always less expensive to maintain than repair or replace once it has become unusable.
Likewise, government spending on
social infrastructure, such as
preventative health care, can save several hundreds of billions of dollars per year in the U.S., because for example cancer patients are more likely to be diagnosed at
Stage I where curative treatment is typically a few outpatient visits, instead of at
Stage III or later in an
emergency room
An emergency department (ED), also known as an accident and emergency department (A&E), emergency room (ER), emergency ward (EW) or casualty department, is a medical treatment facility specializing in emergency medicine, the acute care of pat ...
where treatment can involve years of hospitalization and is often terminal.
Energy infrastructure
Science funding
Governments fund various research beyond healthcare and medical research and defense research . Sometimes, relevant funding decision-making makes use of
coordinative and prioritizing tools, data or methods, such as evaluated relevances to
global issues
A global issue is a matter of Social issue#Types of social issues, public concern worldwide. This list of global issues presents problems or phenomena affecting people around the world, including but not limited to widespread social issues, econ ...
or
international goals or national goals or
major causes of human diseases and early deaths (health impacts).
Travel
Although expenditure on ministerial, elected member and staff travel makes up only a small amount of central government expenditure, and the great majority of work trips by officials are undertaken at standard or economy class, the UK's
National Audit Office has noted that this is an aspect of expenditure attracting high levels of public interest.
Government spending by country
Per capita spending
In 2010 national governments spent an average of $2,376 per person, while the average for the world's 20 largest economies (in terms of GDP) was $16,110 per person. Norway and Sweden expended the most at $40,908 and $26,760 per capita respectively. The federal government of the United States spent $11,041 per person. Other large economy country spending figures include South Korea ($4,557), Brazil ($2,813), Russia ($2,458), China ($1,010), and India ($226). The figures below of 42% of GDP spending and a GDP per capita of $54,629 for the U.S. indicate a total per person spending including national, state, and local governments was $22,726 in the U.S.
Percentage of GDP
This is a list of countries by government spending as a percentage of gross domestic product (GDP) for the listed countries, according to the ''2014
Index of Economic Freedom''
by
The Heritage Foundation
The Heritage Foundation (or simply Heritage) is an American Conservatism in the United States, conservative think tank based in Washington, D.C. Founded in 1973, it took a leading role in the conservative movement in the 1980s during the Presi ...
and ''
The Wall Street Journal
''The Wall Street Journal'' (''WSJ''), also referred to simply as the ''Journal,'' is an American newspaper based in New York City. The newspaper provides extensive coverage of news, especially business and finance. It operates on a subscriptio ...
''.
Tax revenue
Tax revenue is the income that is collected by governments through taxation. Taxation is the primary source of government revenue. Revenue may be extracted from sources such as individuals, public enterprises, trade, royalties on natural reso ...
is included for comparison. These statistics use the United Nations'
System of National Accounts
The System of National Accounts or SNA (until 1993 known as the United Nations System of National Accounts or UNSNA) is an international standard system of concepts and methods for national accounts. It is nowadays used by most countries in the w ...
(SNA), which measures the government sector differently than the U.S.
Bureau of Economic Analysis
The Bureau of Economic Analysis (BEA) of the United States Department of Commerce is a U.S. government agency that provides official macroeconomic and industry statistics, most notably reports about the gross domestic product (GDP) of the United ...
(BEA). The SNA counts as government spending the gross cost of public services such as state universities and public hospitals. For example, the SNA counts the entire cost of running the public-university system, not just what legislators appropriate to supplement students' tuition payments. Those adjustments push up the SNA's measure of spending by roughly 4 percent of GDP compared with the standard measure tallied by the BEA.
Public social spending
Public social spending comprises cash benefits, direct in-kind provision of goods and services, and tax breaks with social purposes provided by general government (that is central, state, and local governments, including social security funds).
[OECD data]
European Union
Public expenditures represented 46.7 percent of total GDP of the European Union in 2018. Countries with the highest percentage of public expenditure were France and Finland with 56 and 53 percent, respectively. The lowest percentage had Ireland with only 25 percent of its GDP. Among the countries of the European Union, the most important function in public expenditure is social protection. Almost 20 percent of GDP of European Union went to social protection in 2018. The highest ratio had Finland and France, both around 24 percent of their GDPs. The country with least social protection expenditure as percent of its GDP was Ireland with 9 percent. The second largest function in public expenditure is expenditure on health. The general government expenditure on health in European Union was over 7 percent of GDP in 2018. The country with highest share of health expenditure in 2018 Denmark with 8.4 percent. The least percentage had Cyprus with 2.7 percent. General public services had 6 percent of total GDP of European Union in 2018, Education around 4.6 percent and all other categories had less than 4.5 percent of the GDP.
Research, assessments and transparency
There is research into government spending such as their efficacies or effective design or comparisons to other options as well as research containing conclusions of public spending-related recommendations. Examples of such are studies outlining benefits of
participation in bioeconomy innovation or identifying potential "misallocations" or "misalignments".
Often, such spending may be broad – indirect in terms of national interests – such as with human resources/education-related spending or establishments of novel
reward systems. In some cases, various goals and expenditures are made public to various degrees, referred to "budget transparency" or "government spending transparency".
Informed and optimized allocations
A study suggests "Greater attention to the development of methods and evidence to better inform the
allocation of public sector spending between departments" may be needed and that decisions about public spending may miss opportunities to improve social welfare from existing budgets.
Underlying drivers of spending alterations
A study investigated funding allocations for
public investment in energy
research, development and demonstration reported insights about past impacts of its drivers, that may be relevant to
adjusting (or facilitating) "investment in
clean energy
Energy is sustainable if it "meets the needs of the present without compromising the ability of future generations to meet their own needs." Definitions of sustainable energy usually look at its effects on the environment, the economy, and s ...
" "to come close to achieving meaningful
global decarbonization". The investigated drivers can be broadly described as crisis responses, cooperations and competitions.
Principles and ethics
Studies and organizations have called for systematically applying principles to spending decisions or to take current issues and goals such as
climate change mitigation
Climate change mitigation (or decarbonisation) is action to limit the greenhouse gases in the atmosphere that cause climate change. Climate change mitigation actions include energy conservation, conserving energy and Fossil fuel phase-out, repl ...
into account in all such decisions. For example, scientists have suggested in ''
Nature
Nature is an inherent character or constitution, particularly of the Ecosphere (planetary), ecosphere or the universe as a whole. In this general sense nature refers to the Scientific law, laws, elements and phenomenon, phenomena of the physic ...
'' that governments should withstand various pressures and influences and "only support agriculture and
food systems that deliver on the
SDGs (in line with "public funds for public goods")".
Similarly in regard to openness, a campaign by the
Free Software Foundation Europe
The Free Software Foundation Europe e.V. (FSFE) is an organization that supports free software and all aspects of the free software movement in Europe, with registered chapters in several European countries. It is a registered voluntary associat ...
(FSFE) has called for a principle of "Public Money, Public Code" – that software created using taxpayers' money is developed as
free and open source software
Free and open-source software (FOSS) is software available under a Software license, license that grants users the right to use, modify, and distribute the software modified or not to everyone free of charge. FOSS is an inclusive umbrella term ...
, and
Plan S
Plan S is an initiative for open-access science publishing launched in 2018 by "cOAlition S", a consortium of national research agencies and funders from twelve European countries. The plan requires scientists and researchers who benefit from ...
calls for a requirement for scientific publications that result from research funded by public grants being published as
open access
Open access (OA) is a set of principles and a range of practices through which nominally copyrightable publications are delivered to readers free of access charges or other barriers. With open access strictly defined (according to the 2001 de ...
.
Public sector ethics Ethics in the public sector is a broad topic that is usually considered a branch of political ethics. In the public sector, ethics addresses the fundamental premise of a public administrator's duty as a "steward" to the public. In other words, it is ...
may also concern government spending, affecting the shares and intentions of government spending or their respective rationales (beyond ethical principles or implications of the contextual socioeconomic structures), as well as corruption or diversion of public funds.
In 2012, following a United States
presidential Campaign to Cut Waste, the
Office of Management and Budget
The Office of Management and Budget (OMB) is the largest office within the Executive Office of the President of the United States (EOP). The office's most prominent function is to produce the president's budget, while it also examines agency pro ...
issued a memorandum to the heads of federal departments and agencies calling for the avoidance of wasteful expenditure, identifying "practical steps" and setting specific targets for reduction of expenditure on travel,
conference
A conference is a meeting, often lasting a few days, which is organized on a particular subject, or to bring together people who have a common interest. Conferences can be used as a form of group decision-making, although discussion, not always d ...
attendance and expense,
real property
In English common law, real property, real estate, immovable property or, solely in the US and Canada, realty, refers to parcels of land and any associated structures which are the property of a person. For a structure (also called an Land i ...
and
fleet management.
History
Before World War I
At the end of the 19th century average public expenditure was around 10 percent of GDP. In US it was only 7 percent and in countries like United Kingdom, Germany or Netherlands it did not exceed amount of 10 percent. Australia, Italy, Switzerland and France had public expenditure over 12 percent of GDP. It was considered as a significant involvement of government in economy. This average share of public expenditure increased to almost 12 percent before the start of
World War I
World War I or the First World War (28 July 1914 – 11 November 1918), also known as the Great War, was a World war, global conflict between two coalitions: the Allies of World War I, Allies (or Entente) and the Central Powers. Fighting to ...
. Due to the World War I anticipation, the share increased quickly in Austria, France, United Kingdom or Germany.
Effect of World War I and interwar period
The World War I caused a global growth of the public expenditure share in GDP. In United Kingdom, Germany, Italy and France, which were affected a lot by the war, the share of public expenditure even exceeded 25 percent. In interwar period the average share of the public expenditure was still slightly increasing. The United States increased its public expenditure with the New Deal. Other governments also increased public expenditure to create more employment. The increase was accelerated by
World War II
World War II or the Second World War (1 September 1939 – 2 September 1945) was a World war, global conflict between two coalitions: the Allies of World War II, Allies and the Axis powers. World War II by country, Nearly all of the wo ...
anticipation in the second part of the 30s among European countries. In 1937 the amount of average public expenditure share was between 22 and 23 percent, twice as much as before World War I. However, it is fair to mention that part of this increase of public expenditure share was caused by GDP fall. Most of industrialized countries had its GDP over 15 percent before the World War II. Only Australia, Norway and Spain had less than 15 percent of GDP.
World War II and post-war period
From the start of the World War I until 1960 the average share of public expenditure in GDP increased slowly from 22 to 28 percent. Most of this increase was given by growth of military spending caused by World War II. Spain, Switzerland and Japan had their public expenditure still below 20 percent of their GDPs.
Second half of the 20th century.
The average public expenditure, as a share of GDP, increased rapidly between years 1960 and 1980 from around 28 to 43 percent. No industrial country had this share below 30 percent in 1980. In Belgium, Sweden and Netherlands it was even over 50 percent. In last two decades of 20th century share of public expenditure kept increasing, but the growth significantly slowed down. In 1996 the average public expenditure was around 45 percent, which is in comparison with 1960–1980 period slow increase from year 1980. During 1980–1996 period the public expenditure share even declined in many countries, for example United Kingdom, Belgium, Netherlands etc.
Growth of public expenditure
There are several factors that have led to an enormous increase in public expenditure through the years
1) Defense expenditure due to modernization of defense equipment by the navy, army and air force to prepare the country for war or for prevention causes-for-growth-of-public-expenditure.
2) Population growth – It increases with the increase in population, more of investment is required to be done by government on law and order, education, infrastructure, etc. investment in different fields depending on the different age group is required.
3) Welfare activities – social welfare, pensions, etc.
* Provision of public and utility services – provision of basic public goods given by government (their maintenance and installation) such as transportation.
* Accelerating economic growth – to raise the standard of living of the people.
* Price rise – higher price level compels the government to spend an increased amount on purchase of goods and services.
* Increase in public revenue – with the rise in public revenue government is bound to increase the public expenditure.
* International obligation – maintenance of socio-economic obligation, cultural exchange etc. (these are indirect expenses of government)
4) Wars and social crises – fighting among people and communities, and prolonged drought or unemployment, earthquake, hurricanes or tornadoes may lead to an increase in public expenditure of a country. This is because it will involve governments to re-plan and allocate resources to finance the reconstruction.
5) Creation of super national organizations – E.g., the United Nations, NATO, European community and other multinational organizations that are responsible for the provision of public goods and services on an international basis, have to be financed out of funds subscribed by member states, thereby adding to their public expenditure.
6) Foreign aid – Acceptance by the richer industrialized countries of their responsibility to help the poor developing countries has channeled some of the increased public expenditure of the donor country into foreign aid programmes.
7) Inflation – This is the general rise in the price level of goods and services. It increases the cost of all activities of the public sector and thus a major factor in growth in money terms of public expenditure
Present
Since the late 1980s, the average public expenditure to GDP ratio is increasing slowly. The only industrialized countries that reduced significantly are New Zealand, Ireland and Norway. One of the reasons is growing skepticism about governmental intervention in the economy.
See also
*
Rahn curve
*
Open government
Open government is the governing doctrine which maintains that citizens have the right to access the documents and proceedings of the government to allow for effective public oversight. In its broadest construction, it opposes reason of state a ...
*
Government operations
*
Public finance
Public finance refers to the monetary resources available to governments and also to the study of finance within government and role of the government in the economy. Within academic settings, public finance is a widely studied subject in man ...
*
Government budget
A government budget is a projection of the government's revenues and expenditure for a particular period, often referred to as a financial or fiscal year, which may or may not correspond with the calendar year. Government revenues mostly incl ...
*
Government waste
*
Fiscal policy
In economics and political science, fiscal policy is the use of government revenue collection ( taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variab ...
*
Fiscal council
A fiscal council is an independent body set up by a government to evaluate its government spending, expenditure and tax policy. Typically, councils are staffed by economists and statisticians who do not have the ability to set policy, but provide a ...
*
Sovereign wealth fund
A sovereign wealth fund (SWF), or sovereign investment fund, is a state-owned investment fund that invests in real and financial assets such as stocks, Bond (finance), bonds, real estate, precious metals, or in alternative investments such as ...
*
Mandatory spending
The United States federal budget is divided into three categories: mandatory spending, discretionary spending, and interest on debt. Also known as entitlement spending, in US fiscal policy, mandatory spending is government spending on certain p ...
*
Taxpayers unions
*
Eurostat
Eurostat ("European Statistical Office"; also DG ESTAT) is a department of the European Commission ( Directorate-General), located in the Kirchberg quarter of Luxembourg City, Luxembourg. Eurostat's main responsibilities are to provide statist ...
*
Government spending in the United Kingdom
*
Government spending in the United States
*
List of countries by government spending as percentage of GDP
*
Expenditure incidence
Notes
References
; Citations
58. Kind, H. J., & Guttorm Schjelderup. (2025). Taxation and multi-sided platforms: a review. ''International Tax and Public Finance''.
https://doi.org/10.1007/s10797-024-09878-1
; General
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Works cited
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External links
OECD Government spending statisticsCanadian Governments ComparedEurostat's government spending per sector
{{DEFAULTSORT:Government Spending
Government finances
Fiscal policy