Sample Essay on Factors Affecting Government Spending

Government spending includes all government investment and consumption but it excludes transfer payments like welfare payments and unemployment insurance. There are two major types of government spending and these include gross capital consumption and final consumption.

In most of the macroeconomic models, level of government spending is viewed as exogenous which often, is a constant. Government spending is always a reflection of its policy and while this is the case, spending changes for reasons that dont have to do with economic policy. Health and education government spending for instance depends on the structure of the population, social security and unemployment payments, level of income and the distribution.

Factors that affect government spending can be broken down into 4 main sections which include the following:

Entitlement programs which include health care programs, retirement programs such as social security, pensions, social and welfare insurance which includes programs like unemployment compensation and food stamps

Military spending

Infrastructure and services which included education spending, science spending, research, technology and development spending, transportation and general spending.
Interest on national debt.

24% of federal spending today is on the military which is up from the low that was recorded from 1998 through to 2001 of 20%. Military spending in the United States has been rising substantially over the years. Most discussions on government spending are often focused on federal spending, local state governments and state. While this is the case, there are different factors that affect how much a government can spend and some of these are as highlighted below:

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  • Recessions-Whenever there are recessions, the government does not get a lot of revenue whether in the form of tax or other funds. As a result, they dont spend more because the resources are limited. In such instances, governments are forced to cut down on their budgets and save more. Recessions reduce the tax base as such the tax rates have to be increased to balance budgets.
  • Government budget-This is yet another aspect that plays a role in determining government spending. All governments set out their budget and work on sticking to the guidelines in order to ensure they balance things out.
  • Government spending in the US has increased substantially in the last century from about 7% of gross domestic product in 1902 to 35% of gross domestic product in 2010. During the World War 1 and World War 2, major spikes in government spending were recorded. When broken by major function, government spending shows consistency increase in education spending and healthcare.
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