Elements of Government Expenditure: Growth, Causes, and Limits

Structurally, all budgets have two sides: an expenditure side, called the expenditure budget, that deals with the amount of money a government spends each year on various programs and activities, and a revenue side, called the revenue budget, that deals with the amount of revenue a government collects from various sources to pay for those activities. The amount of money a government spends each year on public programs and activities ranges from a few million dollars to hundreds of millions, to billions and even trillions of dollars, depending on the size of the government and the level of activities. Historically, government expenditure has been increasing consistently over the years, especially at the federal level, raising serious concerns among academics and practitioners. While the growth trend remains a concern, government expenditure nevertheless serves a number of vitally important functions. In addition to dealing with market inefficiencies, such as those discussed earlier, government expenditure is necessary to stabilize the economy, to maintain a strong national defense, and to deal with specific needs of society such as redistributing income that a free-market system cannot address on its own. This chapter provides a broad overview of government expenditure, in particular the difference between different types of expenditure, the nature of growth in government expenditure, and the causes that underlie the growth pattern. However, government expenditure cannot grow without limits, since no economy can sustain 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.