Government expenditure, also known as government spending, refers to the resources a government allocates to achieve its strategic objectives and satisfy the needs of the members of the nation. Governments spend money on health care, education, Social Security benefits, infrastructure and defense activities. Annual government budgets specify the breakdown of funds for a fiscal year. Total government expenditure includes federal government expenditure, as well as state and local government expenditure.
Government expenditure relates to the objectives of a government, such as price stability, financial control and economic growth. Governments spend to maintain bridges, roads, harbors and canals, on defense activities, to protect trade, to generate coinage, to provide Social Security and other entitlements and to facilitate education.
Economists classify government expenditure into two main types: transfer payments and purchase of services and goods. Transfer payments are those in which one group -- the government in this case -- transfers an asset, service or good to another group without receiving anything in return. Examples include unemployment benefits, provident fund, pensions and other Social Security benefits. Governments invest in social services, such as Social Security, welfare, health and housing, defense, law and order, transport, housing and the environment. They also spend on consumption goods and investment goods. Consumption goods include items and commodities such as vehicles, household equipment, furniture and food items that are directly consumed or used. Investment goods refer to raw materials or intermediate goods that help in the production of consumption goods. Construction material is an investment good.
A government has to generate money to spend it. The U.S. government generates revenue primarily through taxes. The federal government, for example, generates revenue through Social Security tax (payroll tax), corporate income taxes, personal income taxes and other taxes. Most federal-level taxes are on income. State and local governments, on the other hand, generate revenues through fed grants, sales taxes, property taxes, corporate income taxes and personal income taxes.
U.S. Government Expenditure 2011
The 2011 budget of the U.S. federal government allocates an estimated $3.82 trillion on total expenditures against total estimated revenues of $2.17 trillion; 24.36 percent of the total expenditure is allocated to defense, 23.56 percent to health care, 20.66 percent to pensions, 12.19 percent to welfare and 19.24 percent to infrastructure.