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What is Government Expenditure?

Jessica Ellis
Updated May 16, 2024
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Government expenditure is a term used to describe money that a government spends. Expenditure occurs on every level of government, from local city councils to federal organizations. There are several different types of government expenditure, including the purchase and provision of goods and services, investments, and money transfers.

In a free market economy, not all basic needs are generally met by the private sector. Some goods or services may not be produced at all, while others may be not be produced in enough quantity or at an affordable rate for all citizens. Much of government expenditure is involved in the creation and implementation of these goods and services. This type of government spending is referred to as government final consumption.

Some examples of government final consumption include the creation and maintenance of the military, police, emergency, and firefighting organizations. These are funded by federal and regional governments, in order to provide for both the safety of the country from attack, and the safety of citizens from crime and disasters. Others examples include programs such as health care, food stamps, and housing assistance for disabled or severely low-income citizens. Public education and public transportation infrastructure are other main categories of this form of government expenditure.

Another form of government expenditure is akin to investing, though formally referred to as gross fixed capital formation. This involves the creation and support of systems and institutions that are seen as assets to the producing value of the country. Subsidization of farms is one of the major forms of this type of expenditure, since by producing food, farms provide for one of the largest needs of any society. The building of new road systems, bridges, and airports are also major areas of this type of spending.

Transfer payments refer to expenditures that in effect move money from one area of an economy to another. As a government receives wealth through taxes and loans, it has the opportunity to funnel some of that money into focused programs for certain segments of the population. Some government offered financial aid, such as student loans, may be considered a transfer payment. Government retirement funds, such as social security, are also considered transfer expenditures.

Government expenditure is financed through a variety of methods. Most often, governments use taxes to fund programs and expenditures, but this is far from the only means of creating assets for spending. Many governments engage in deficit spending, where government may borrow based on future projected budgets in order to fund programs. Governments may also choose to take loans from foreign countries to finance expenditure. How money is spent and from what source is the main component in a government's fiscal policy.

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Jessica Ellis
By Jessica Ellis
With a B.A. in theater from UCLA and a graduate degree in screenwriting from the American Film Institute, Jessica Ellis brings a unique perspective to her work as a writer for SmartCapitalMind. While passionate about drama and film, Jessica enjoys learning and writing about a wide range of topics, creating content that is both informative and engaging for readers.

Discussion Comments

By clintflint — On Nov 05, 2013

@pleonasm - I think it's a very rare person who thinks that they shouldn't have to pay taxes that go towards emergency services. My objection to the federal budget is usually more about military spending and the amount that goes into politician's pockets and the pockets of their friends and cohorts.

By pleonasm — On Nov 05, 2013

@MrsPramm - I think the better example is the emergency services that most people enjoy. It makes me think of a news story that ran a few years ago about a guy who lived way out in the country, where the fire service charged a small annual fee to cover because it was so far away from town.

He refused to pay the fee, and they refused to come when his house burned down (after making sure all the people were safe).

I heard a lot of people complaining about the fire service, but that guy would not have been paying the extra taxes that we all pay automatically in order to support firefighters. It was very black and white to me. Either you pay or you don't get the benefits.

By MrsPramm — On Nov 04, 2013

In some ways I think that the government is a little bit too quiet about their expenditure. Most of the time the government spending breakdown that people see is just a giant pie graph and it's hard to tell what is really going on.

But I have a friend who works as a road contractor and the amount of time and dedication and materials that go into making sure all the roads that people use everyday are safe is amazing.

That's not even talking about the signage and the lights and the rule development and so forth that also all costs money, but which people don't really think about. It's an enormously expensive thing that would only be possible in a system where everyone pays taxes into a big fund and then uses it appropriately.

Jessica Ellis

Jessica Ellis

With a B.A. in theater from UCLA and a graduate degree in screenwriting from the American Film Institute, Jessica Ellis...
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