State Government Expenditures

12 Key excerpts on "State Government Expenditures"

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  eBook - ePub

  Handbook of Public Sector Economics

  • Donijo Robbins(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  8 Fiscal Characteristics of Public Expenditures Suzanne Leland Department of Political Science, University ofNorth Carolina at Charlotte, Charlotte, NC

  8.1 Introduction

  Public expenditures help educate children, keep our streets safe, help people get to and from work, and provide medical treatment to the elderly and poor, to name just a few things. They are also the playing fields for politicians. They reflect compromise, negotiation, and the interpretation of public preferences made in the halls of our capitals and state and local governments. They are part of the budgeting system that must match the revenues derived from myriad sources. Essentially, the decision to allocate public expenditures determines who gets what from government.

  Several economic issues are involved in the allocation of public expenditures in our federal fiscal system. Public expenditures can be defined as money allocated by governments for the provision of public goods and services. According to the U.S. Census definition, general expenditures include all expenditures with the exception of those for government utilities, liquor stores, and employee retirement funds. For the purpose of this chapter we will utilize this definition.

  When discussing the economic impact of public expenditures, we cannot view them in isolation. Public expenditures are part of the budgetary process. At the federal level, this means that for every tax dollar collected, there can be at least a dollar increase in government spending, also known as deficit spending (or the accumulation of debt). At the state and local government level, expenditures must match revenues because budgets are required to balance. If a state has budget shortfall of $38 billion dollars (such as California in 2003), the state must find a way to balance its books. This means cutting services, raising taxes, or a combination of both. Either way, the choices are painful.

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  Macroeconomic Theory

  A Dynamic General Equilibrium Approach - Second Edition

  • Michael Wickens(Author)
  • 2012(Publication Date)
  • Princeton University Press

    (Publisher)

  Many states also provide goods and services that are not pure public goods. For these government-supplied goods one person’s consumption may well be at the cost of less consumption of these (or of other goods) by someone else. Examples are government-provided education, health, and some forms of transport. These goods and services are often provided by the state on the grounds of equity or efficiency due to economies of scale. Frequently, their public provision is a source of political controversy. Apart from government expenditures on goods and services, there are also government transfers arising from social security benefits, such as unemployment compensation, family benefits, and state pensions.

  Most people take it for granted that government expenditures form a substantial proportion of GDP, yet this is a relatively recent phenomenon, as can be seen from figure 5.1 , which plots government expenditures as a proportion of GDP for the United States and for the United Kingdom since 1901. Real government expenditures on goods and services and real social security benefits as a proportion of GDP have increased considerably over the last century. In 1901 they were only 2.3% of GDP for the United States and 13.5% for the United Kingdom. In most Western countries they increased from around 10–20% of GDP prior to World War I to around 40–50% after World War II. The wars themselves were the times of the greatest expansion in government expenditures. Since World War II, the shares of government expenditures in GDP have risen steadily and, apart from unemployment benefits, which vary countercyclically over the business cycle, they are not much affected by the business cycle. On average, the expenditures on goods and services and on transfers are roughly equal in size. Total government expenditures also include interest payments on government debt.

  Government revenues are primarily tax revenues: direct taxes on incomes and expenditure, social security taxes, and corporate taxes. The balance varies somewhat between countries, but for most developed countries direct taxes and social security taxes—which are in effect taxes on incomes—are about 60% of total tax revenue, consumption taxes are about 25%, and corporate taxes are about 10%. The average tax rate on incomes (including social security) is around 42%. Tax revenues tend to be more affected by the business cycle than expenditures. This is the main reason why government deficits tend to increase during a recession.

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  eBook - ePub

  Making Policy Work

  • Peter John(Author)
  • 2011(Publication Date)
  • Routledge

    (Publisher)

  There are different definitions of the welfare state variable, which may or may not include tax expenditures – particular benefits in the tax system – and different measures of growth all generate different results. The key limitation is the account of causation as mentioned above, where it is almost impossible to disentangle economic growth from spending. What should be borne in mind is Saunders' (1986) critique, which suggests cross-national regressions are rarely able to sustain the weight of inference placed upon them, partly because they are carried out in particular time periods and with groups of countries. It is striking that after Atkinson's intervention this macro-level debate runs into the sand. The main effect of public expenditures is through some selective spending, such as in education (Barro, 1991), through investment in human capital, which in turn generates economic growth. Barro's study increases the range of cases – 90 – to outside OECD countries using data from 1960–85. Again, like the other economic studies, the growth rate is inversely related to the share of the public sector of GDP. Crucially the size of the public sector is related to the amount of private investment, which in turn contributes to growth. It should also be noted this study measures the school enrolment rate, not the expenditure. Barro separately tests whether public investment expenditure influences growth, which it does not. This result, along with the other negative findings in the economics literature, remains unchallenged. Overall, using the important case of the spending on the welfare state, a range of studies show positive impacts, either at the aggregate level or for the welfare of specific groups in the population. There remains the fear the overuse of this tool of government will crowd out other activities, such as economic growth or other beneficial self-organising activities

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  Public Finance

  An International Perspective

  • Joshua E Greene(Author)
  • 2011(Publication Date)
  • WSPC

    (Publisher)

  Government tax laws, expenditure programs, and regulation all impose costs, often substantial, on the private sector. These costs do not count as government expenditures. Yet they represent part of the “burden” of government on an economy. Government building codes impose additional costs on contractors, businesses, and homeowners, for example. Paying taxes and complying with tax regulations also involve substantial amounts of time and expense for firms and households. These amounts should be remembered when figuring the “true” cost of government.

  Finally, many expenditure programs contain hidden taxes, in the form of reducing benefits as income rises. In some countries, subsidy rates and benefit payments for certain programs decline as income rises. For example, in the United States, an “earnings test” causes social security benefits for those younger than “full retirement age” (the age at which benefits are no longer reduced for early retirement) to be reduced by US$1 for every US$2 in earnings. Before 2000, benefits were reduced by this amount for those aged 65 to 69; before 1983, it applied to those younger than 72.5

  III. Main Categories of Government Expenditure

  As noted in Chapter Four, the main components of government expenditure can be classified in two ways: economically, and by function. Under the 1986 Manual on Government Finance Statistics, which most countries still use, the economic classification of government expenditure identifies three broad types of outlays: current expenditure, capital expenditure, and net lending (which represents net outlays — loans minus the repayment of principal — for government lending programs that serve policy purposes). Current expenditure comprises outlays for wages and salaries (compensation of employees), purchases of other goods and services (non-wage outlays for operations and maintenance), interest payments, and subsidies and transfers. Military outlays are usually included in current expenditure, except for identified outlays for military bases. Capital expenditure comprises all outlays for long-term projects, such as infrastructure, and spending for military installations (but not weapons or armaments). The 2001 Government Finance Statistics Manual

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  Public Expenditure

  • Jerry Miner(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  The study of the statutory impact of taxes and of household and business response to taxation has produced an enormous literature on shifting and incidence and heated controversy over the relevance and usefulness of the conventional analysis. Although, as has been indicated above, taxation is not a major concern of the present work, the distribution of public expenditures are examined here. The issues involve first, attempts to assign public expenditures or the services provided by the public sector to particular groups in the economy, usually categorized by income class. A second concern is to examine reactions with regard to production, consumption, and the provision of services by decision-making individuals and firms to the availability, free of direct charge, of various public services. One rather conspicuous illustration here is the question of whether measures such as increases in welfare payments or the establishment of a guaranteed annual income reduce or increase work incentives. Less obvious is the response of businesses to increased public expenditures on police and fire protection or of households to greater public adult education. Another important facet of this same issue might be termed “expenditure capitalization” as an analogue to tax capitalization. This arises mainly when spatial considerations cause an increase or decrease in the value of real estate or real business property as a result of a public action such as the building of a park, an incinerator, an airport, or highway.

  These efforts at empirical analysis of the consequences of expenditure, along with similar attempts for taxation are, at best, extremely limited in scope. They do not in any way go beyond examination of impact or first round shifting toward the ultimate general equilibrium effect of taxes and expenditures. Such objectives are far beyond the capacity of present analytic and empirical techniques and appear destined to remain so.

  Finally, positive studies have been made of the budgetary process and the underlying political structure as a means of explaining the emergent pattern of agency requests and legislative authorizations and appropriations. Here the major research has been performed by political scientists who have examined the budgetary process at the state and federal level with regard to systematic relations between the size of the budget appropriation and individual agency requests and a variety of factors such as agency “acquisitiveness,” executive tenure, and the numbers of years a party has been in office.

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  Economic Policy, Financial Markets, And Economic Growth

  • Benjamin Zycher(Author)
  • 2019(Publication Date)
  • Routledge

    (Publisher)

  Government Spending and Taxation Passage contains an image

  Introduction

  The consumption and reallocation of resources perhaps constitute the very essence of government, achieved in the main through its powers of taxation and spending. That such fiscal activity by the public sector yields both benefits and costs is beyond doubt, but the measurement of those effects remains difficult, despite much research effort over many years. This difficulty does not reduce the need for qualitative and quantitative analysis of the benefits and costs of fiscal activity, as government consumes and redirects a substantial proportion of national output in most of the world.

  But for market economies, in which prices are assumed to reflect the value and cost of resources, the value of government output in national accounts generally is measured as (or is assumed to be equal to) the cost of the inputs used by government; those costs usually do not reflect secondary but important effects of taxation and spending. If government is “too big”-that is, if aggregate wealth would be increased were some resources shifted away from government back to the private sector-then the national accounts are likely to overstate the value of government spending. And the secondary effects of fiscal activity imply that the government budget would understate the true economic cost of taxation and spending.

  Notwithstanding the existence of a vast literature on the demand and cost of public services, much work remains to be done in terms of both conceptual and empirical analysis of public sector spending and taxation, and attendant effects upon aggregate economic well-being. William A. Niskanen reports empirical findings on the effect of several types of fiscal activities upon three alternative measures of economic growth. He finds that government spending increases real GNP significantly, whereas taxes and deficit spending (i.e., future taxation) have significant negative effects. Interestingly, Niskanen finds that the economic benefits of nondefense spending not used for transfer payments-loosely, public sector nondefense investment-may be greater than the economic costs of the taxes and debt needed to finance the additional spending, at least as the benefits are measured in his econometric analysis. One possible problem with this finding is that some or much government investment could be undertaken by the private sector, and it is at least plausible that costs would fall. If that is true, it may suggest that the actual net effect of some government spending upon growth and productivity is negative, but not captured by the data.

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  The End of Welfare?

  Consequences of Federal Devolution for the Nation

  • Max B. Sawicky(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  FIVE Growing State Economies How Taxes and Public Services Affect Private-Sector Performance Timothy J. Bartik Introduction

  The economic effect of state and local government spending has been the object of a growing body of research. Governors and mayors want to know what they can do to increase their state or city’s economic development. Politicians, the public, and the news media often debate whether cutting taxes or increasing spending is the best strategy for improving local economic development. Spending increases and tax cuts are often advanced under the rationale that they will bring significant collateral benefits for jobs and the economy over and above their specific benefits.

  A more encompassing motive for research on state and local government spending and economic development is to investigate how best to expand the national economy. Growth in real wages and income has slowed in recent years, in part because U.S. productivity growth—the growth of U.S. economic output compared to labor and other inputs—has been slow. David Aschauer (1989a, b, c; 1990) and Alicia Munnell (1990a, b) argue that U.S. productivity growth is hampered by the slow growth of “public capital” (roads, mass transit, water and sewer systems, etc.). National data analyzed by these researchers show some correlation between public capital growth and U.S. productivity growth. If Aschauer and Munnell are correct, then increasing spending on public capital might boost U.S. productivity growth, thereby inducing more rapid increases in wages and incomes.

  Evidence based on U.S. national data is limited for a number of reasons. One is that there is not a great deal of historical, statistical experience from which to draw. Another is that correlations in the national data between public capital and productivity could be the result of unknown external factors affecting both variables, or they could simply occur by accident.

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  eBook - ePub

  The Welfare State

  Its Aims, Benefits and Costs

  • J.F. Sleeman(Author)
  • 2018(Publication Date)
  • Routledge

    (Publisher)

  Chapter Seven

  THE ECONOMICS OF THE WELFARE STATE

  In this chapter we shall be concerned to work out the economic implications of the Welfare State. What are the effects on the way in which the nation gets its living, of the diversion of such a large proportion of our national product from the incomes of individuals and firms to the recipients of cash benefits and services in kind, through taxation and the social services?

  First, we trace in more detail the ways in which expenditure on the social services has grown, in the present century, and especially since 1945, relative to both the national product and to Government expenditure. Then we look at the expenditure on the different branches of the social services and the ways in which this is financed. This leads on to a discussion of the main social, economic and political factors lying behind the rising trend of expenditure and of whether there are any counteracting factors. From this we go on to discuss the extent of the redistribution of incomes involved, and its consumption, savings and investment and on incentives to work and to undertake business enterprise.

  THE GROWTH AND DISTRIBUTION OF SOCIAL SERVICE EXPENDITURE

  Table 4 shows the trends in total public expenditure, and the main categories into which it can be divided, as percentages of the gross national product. It includes all forms of Government agency, central Government, local authorities and specialized bodies such as the National Insurance Funds and the hospital boards, but not the nationalized industries, except for current or capital payments made to them from the Exchequer. It also includes both current and capital expenditure. Table 5

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  eBook - ePub

  Public Finance in Theory and Practice Second edition

  • Holley Ulbrich(Author)
  • 2013(Publication Date)
  • Routledge

    (Publisher)
• Revenue forecasts are based on anticipated economic conditions, which are then incorporated into formal or informal models that related the economic forecast to the tax base and, using elasticity relationship, from the tax base to revenue. These forecasts also reflect any changes in the tax structure including rates and tax expenditures. Expenditure budgeting also involves forecasts that are based primarily on inflation projections and population growth.
• The budget of any government does not usually include all revenue and expenditures. Some revenue and expenditures are recorded separately in off-budget accounts that do not pass through the legislative budget process on an annual basis. Social Security and Medicare are the most important US federal off-budget accounts, while state employee retirement systems are the largest state off-budget account. There are also separate enterprise funds at the federal as well as the state and local level for many fee-financed services such as water and sewerage.
• The form of the expenditure budget may be a line-item budget, which looks at the recipients of payments (e.g., wages, services purchased), or more likely a program budget, which allocates funds to agencies or programs so that the cost of a program can be related to its benefits.
• New or expanded programs or projects go through a variety of evaluative processes. Some budgetary processes also periodically apply such scrutiny to existing budgets. More sophisticated forms of developing expenditure budgets are performance budgeting or zero-based budgeting, but both require a great deal of paperwork and are time-consuming and expensive to implement.
• Past efforts to contain government growth at the federal level include the Gramm– Rudman Act of the 1980s and at the state and local level, tax and expenditure limitations (TELs) such as Proposition 13 in California and TABOR in Colorado. However, some TELs have had a negative impact on the quality of local public services.