Government

Spending
Bustamante, Araceli
Cunanan, Angellie
 Definition of Government
Spending
This component considers the level of
government expenditures as a
percentage of GDP.
Government expenditures, including
consumption and transfers, account
for the entire score.
 Definition of Government
Spending

It is also known a public spending

The government spending component
captures the burden imposed by
government expenditures, which includes
consumption by the state and all transfer
payments related to various
entitlement programs.
 Formula of Government
Spending
The equation used for computing a country’s
government spending score is:
GEi = 100 – α (Expendituresi)2
where GEi represents the government
expenditure score in country i;
Expendituresi represents the total amount of
government spending at all levels as a portion of
GDP (between 0 and 100); and α is a coefficient
to control for variation among scores (set at
0.03). The minimum component score is zero.
 Formula of Government
Spending
The scale for scoring government spending is
non-linear, which means that government
spending that is close to zero is lightly penalized,
while levels of government spending that exceed
30 percent of GDP lead to much worse scores in
a quadratic fashion (for example, doubling
spending yields four times less freedom). Only
extraordinarily large levels of government
spending—for example, over 58 percent of
GDP—receive a score of zero.
 General Government Spending

General government spending, as a share

of GDP and per person, provides an
indication of the size of the government
across countries. General government
spending generally consists of central, state
and local governments, and social security
funds.
General government expenditure data
include all levels of government such as
federal, state, and local.
 Classifications of
Government Spending
Government Consumption. Government
purchases of goods and services for
current use
Government Investment. Government
purchases of goods and services intended
to create future benefits – such as
infrastructure investment or research
spending
 Classifications of
Government Spending
Transfer Payments. Government
expenditures that are not purchases of
goods and services, and instead just
represent transfers of money – such as
social security payments
 Purposes of Government
Spending
Government spends money for a variety of
reasons, including:
To supply goods and services that the private
sector would fail to do, such as public goods,
including defense, roads and bridges; merit
goods, such as hospitals and schools; and
welfare payments and benefits, including
unemployment and disability benefit.
 Purposes of Government
Spending

To achieve supply-side improvements in the

macro-economy, such as spending
on education and training to improve labor
productivity.
To reduce the negative effects
of externalities, such as pollution controls.
 Purposes of Government
Spending
To subsidize industries which may need
financial support, and which is not available
from the private sector.
To help redistribute income and achieve more
equity.
To inject extra spending into the macro-
economy, to help achieve increases
in aggregate demand and economic activity.
Such a stimulus is part of discretionary fiscal
policy.
 Financing Government
Spending

Taxes
The main objective of taxation is raising
revenue. A high level of taxation is necessary
in a welfare State to fulfill its obligations.
Taxation is used as an instrument of attaining
certain social objectives i.e. as a means of
redistribution of wealth and thereby reducing
inequalities.
 Financing Government
Spending
Debt
Governments, like any other legal entity, can
take out loans, issue bonds and make financial
investments. Government debt (also known as
public debt or national debt) is money (or credit)
owed by any level of government; either central
or federal government, municipal
government or local government. Some local
governments issue bonds based on their taxing
authority, such as tax increment
bonds or revenue bonds.
 Financing Government
Spending
Seigniorage
Seigniorage is the net revenue derived from the
issuing of currency. It arises from the difference
between the face value of a coin or bank
note and the cost of producing, distributing and
eventually retiring it from circulation.
Seigniorage is an important source of revenue
for some national banks, although it provides a
very small proportion of revenue for advanced
industrial countries.
 Fiscal Deficits and the
National Debt
Fiscal deficits occur when the revenue
received by a government is less than
spending during a financial year. These
deficits will create the need to borrow by
selling government securities - bills and
bonds.
 What is National Debt?

The national debt is the cumulative amount

of annual borrowing that occurs when
government spending is greater than
revenue.
 What Causes a Rising National
Debt?

A rising national debt can happen when tax

revenues fall and government spending
rises as the economy slows down or goes
into recession, or when householders and
firms spend less, so less VAT is collected,
and householders and firm receive less
income, so revenues from income taxes fall.
Bottom Five Countries
in Government
Spending
 Belgium

Government spending has leveled off at

53.4 percent of total domestic output, and
public debt is over 100 percent of GDP.
 France

Government spending equals 57.5 percent

of total domestic output. With deficits
hovering around 4 percent of GDP, public
debt has reached around 95 percent of GDP.
 Denmark

Government spending amounts to more than

55 percent of GDP, and budget deficits are
around 3 percent of GDP. Public debt equals
just under 45 percent of total domestic
output.
 Finland

Government spending amounts to 57.5

percent of GDP, and the budget deficit has
been over 3 percent of GDP. Public debt
equals approximately 60 percent of total
domestic output.
 Timor-Leste

Government spending under the strategic

development plan, which aims to bring the
economy to upper-middle-income status by
2030, has increased expenditures to over
100 percent of total domestic output. The
budget balance has a considerable surplus
due to offshore oil drilling.
 Largely peaceful democratic elections for the
presidency and the parliament since 2012
reflect these achievements
 Government expenditure, funded mainly by
income from offshore petroleum production,
has increased steeply from about $220
million in 2006 to around $825 million in
2009, and was budgeted at $967 million for
2010 and more
 Much of the additional government
expenditure has been on items that have fed
quickly into the local economy. Private
consumption was boosted last year by a
continued rise in wages and salaries and the
cash transfers provided in rural areas by a
wide-ranging social safety net.
 Private investment also rose as local and
overseas owned businesses geared up to
take advantage of the opportunities
presented by rising public investment and
buoyant consumer spending.
 A high level of aggregate demand is
reflected in increases in a range of
indicators, including new vehicle
registrations, electricity use, and mobile
phone
Top 5 Countries in
Government
Spending
 Guinnea-Bissau

Government spending amounts to 14

percent of total domestic output. Oil
revenues have kept the budget deficit low.
Public debt has increased to over 60
percent of GDP.
 Guatemala

Government spending amounts to 13.8

percent of total domestic output. The
government budget is running a deficit,
although public debt remains less than 25
percent of GDP.
 Nigeria

Government spending amounts to 13.4

percent of total domestic output. The
budget is in a slight surplus, and public
debt remains below 20 percent of GDP.
 Sudan
Government spending is below 20 percent
of total domestic output, but public debt
exceeds 70 percent of GDP. Sudan
remains highly dependent on oil, and
violence on the border with South Sudan
and failure to negotiate an oil revenue–
sharing agreement hurt the fiscal climate.
 Democratic Republic of
Congo
Government spending equals 12.7 percent
of domestic output. Much of the public debt
was cancelled in 2010 under the Heavily
Indebted Poor Countries Initiative.
 Democratic Republic of
Congo Economy
 The continuous fall in prices of key raw materials
exported from the country led to a decrease in
exports, foreign investment and the terms of trade.
 The effects of this situation has had negative effects
on the entire economy, leading to a significant
reduction in economic activity, rising unemployment
and a significant deterioration in the budget and
balance of payments, reduction of reserves and
exchange rate pressure that required appropriate
restrictive monetary and fiscal measures and
financial support from the IMF.
 Democratic Republic of
Congo Economy

Despite the reduction in world prices of raw

materials, there has been a noticeable
upsurge in inflationary pressures, induced
mainly by the depreciation of the currency,
combined with weak economic activity and
exports have been a considerable increase
in the cost of imports.
 Democratic Republic of
Congo Economy

Copper prices dropped 26 percent in 2015

to the lowest level in six years. The country
also produces about 9 million barrels of oil
annually. Crude slumped more than 60
percent since June 2014 to below $40 a
barrel, reaching the lowest levels since
2008.
 Philippine
Government
Spending
 Philippines

Government spending amounts to 18.6

percent of GDP. Public debt has been
below 40 percent of GDP. Efforts to narrow
the budget gap have kept budget deficits
under control.
 Government Spending in
Philippines
 Government Spending in Philippines increased to
203953.90 PHP Million in the first quarter of 2016
from 179771.31 PHP Million in the fourth quarter of
2015. Government Spending in Philippines averaged
107998.47 PHP Million from 1981 until 2016,
reaching an all time high of 224704.46 PHP Million in
the second quarter of 2015 and a record low of
62728.31 PHP Million in the first quarter of 1986.
Government Spending in Philippines is reported by
the Philippine National Statistical Coordination Board.
 Philippines: Economy

The Philippine economy posted solid

growth last year in 2015 generated by
strong domestic demand, despite drag from
net exports. Growth is projected to pick up
with higher investment and consumption.
 Philippines: Economy

Inflation is forecast to rise moderately as dry

weather from El Niño presses upward on
food prices and utility rates. Sustaining
strong growth will require policy continuity
supporting the development of infrastructure
and human capital, improvements to the
investment climate, and governance reform.
 “The 2015 spending figures show that the
government has been able to reshape
budget priorities toward allocating more
resources to social and economic services.
Higher disbursement in maintenance as well
as capital outlays funded the expansion of
programs in social services, defense, and
road and transport infrastructure in 2015,”
DBM Secretary Florencio B. Abad said.
 Fiscal Policy and Government
Spending
The central bank strictly kept the banking
system at a high level of capital adequacy in
conformity with sound banking standards.
Hence, the banking system has been kept in
a healthy position capable of withstanding
any potential financial pressures.
 Fiscal Policy and Government
Spending

Frugal government spending has kept the

fiscal deficit to a small level. Though there is
a fiscal deficit, the government’s fiscal
position has been in “primary surplus”
meaning tax revenues were kept ahead of
total expenditures net of interest payments
for debt. A primary surplus is a good sign. It
signals the capacity of the fiscal system to
liquidate its debt. Sovereign credit worthiness
improved.
 Fiscal Policy and Government
Spending
In harmony with the robust balance of
payments position, the strong fiscal position
enabled the reduction of the debt burden on
the economy. Some debt has been prepaid.
Overall, the external debt burden on interest
has been kept within safe limits.
 :http://www.tradingeconomics.com/philippines/government-
spending
 http://www.economicshelp.org/blog/142/economics/what-
does-the-government-spend-its-money-on/
 http://www.worldbank.org/en/country/timor-leste/overview
 http://www.bloomberg.com/news/articles/2016-02-
02/democratic-republic-of-congo-2015-budget-deficit-190-1b-
francs
 http://www.globalpartnership.org/country/democratic-
republic-of-congo
 http://asianjournal.com/news/government-spending-hits-13-
growth-in-2015-highest-y-o-y-growth-since-2012/