An Overview of Government Expenditures

Abstract

Structurally, all budgets have two sides—a revenue side that deals with the amount of revenue a government collects each year from various sources and an expenditure side that deals with how that revenue is spent on various public goods and services. The amount of money a government spends each year on public goods and related activities ranges from a few million dollars to hundreds of millions and even billions of dollars, depending on the size of the government. Historically, government expenditures have been growing consistently over the years, especially at the federal level, raising some serious concerns in recent years. While the growth trend remains a concern, government expenditures serve a number of vitally important purposes. In addition to dealing the market inefficiencies, such as those discussed earlier, government expenditures are necessary to stabilize the economy, to maintain a strong national defense, to provide public goods, and to deal with specific needs of society such as redistribute income that a free market system will not or cannot address on its own. This chapter provides a broad overview of government expenditures, in particular, the differences between different types of expenditure, the nature of growth in government expenditure, and the causes of this growth. However, government expenditures cannot grow without limits since no economy can sustain an uncontrolled growth and, if not carefully monitored, will have serious economic, social, and political consequences. The chapter concludes with a brief discussion of limits to growth in government expenditure.