Chapter 3Measuring the Size

and Scope of Government

Chapter outline

1 ． The Challenge of Comparisons

2 ． Federal Government Revenue and Spending

3 ． State and Local Revenue and Spending

4 ． How Big Should Government Be?

5 ． What Makes Government Grow?

6 ． Constraining the Growth of Government

1 ． The Challenge of Comparisons

①Population Growth and Inflation

②Differences in Income, Wealth, or Special

③Incomplete Data

Conditions

The size of government is measured by revenues ,spending,deficits,and debt.

To make valid comparisons between time periods, or between states,cities,and countries,some figures have to be adjusted for inflation and for increases in population.A method of adjusting for inflation is to compare the growth of revenues or spending to the growth of personal income.Adjustment for increases in population can be done directly,by putting all figures in per capita terms,or indirectly,by expressing data for all years as a percentage of personal income or of GDP.

The case P39

Some states may enjoy substantial revenues from natural resources.

Percentage of income figures are better for making comparisons within a state or nation and between states and nations over time.

2 ． Federal Government Revenue and

Spending fisical years are referred to by the ending data.

Unified budget refers to the total of both budget funds and off-budget funds.

Reported deficits usually refer to the unified budget.

①Trends in Federal Revenue: Levels and Composition

 Dollars Per capita

On-budget revenue 1,544 5,437

Individual income taxes 1,004 3,535

Corporate income taxes 207 729

Social insurance/retirement 167 588

Excise taxes 69 243

other 97 342

Trust fund revenueSocial security trust fund

 481  1704

Total unified budget 2,025 7,130

Source:Economic report of the President 2001(Washington,DC:Government Printing Office,2001)

Overall federal revenues have grown at a rate of 5.8%per year since 1989,and on-budget revenues only 2.8% a year over the same time period,while personal income grew at an average rate of 5.8% .per year. Total federal revenue has been growing at about the same rate as personal income,more slowly if the trust funds are not included.Federal revenue as a share of GDP has been relatively stable during the last 50 years.The individual income tax and Social Security taxes are the main sources of federal revenue.

 

②Trends in Federal Spending

the composition of federal spending has changed dramatically in the last 50 years with a decline in defense spending more than off-set by transfer payments,especially for Social Security. 

Shares of Revnue in the Unified Budget ,FY 2000

Federal Expenditures,Unified Budget FY 2000

③Trends in Federal Debt and Deficits

Interest payments have also claimed a large share because of many years of budget deficits and borrowing.

3 ． State and Local Revenue and

Spending State and local government have a very different mix of revenue sources and spending obligations than that of the federal government .State rely heavily on income and sales taxes,local governments on property taxes and state aid,and both on fees and charges of various kinds.

Education and welfare are the main spending categories,along with health and hospitals,highways,and law enforcement and corrections.

Patterns of revenue and spending vary greatly from state to state.Comparisons of revenues or expenditures between states generally are made using per capita figures to adjust for very different populations,or as a percentage of income.

State General Revenue,1998-1999

Local Government General Revenue,1998-1999

State Expenditures,FY1998

4 ． How Big Should Government Be? The ideal measure would be the level of satisfaction of the representative citizen with his or her tax burdens relative to services received.

There is no simple way to measure the “right” size of government.

One measure is how fast government is growing,absolutely and relative to population or GDP.Another way is to compare the size of the government in the United States to the size of the government in other nations at similar levels of economic development.

Local Government Expenditures,FY 1998-1999

①Share of GDP

In the United States,the federal government’s share of GDP has been relatively stable,particularly on the revenue side.State and local revenue and spending as a share of GDP have grown considerably during the last half century.

②International Comparisons

Table 3-7 Comparative Central Government Revenue and Spending as

Percent of GDP,1998

5 ． What Makes Government Grow?

①Citizen demand

②Bureaucracy-driven Demand

③Elastic Revenue Sources

④Fee for Service

⑤Lack of a Budget Constraint

6 ． Constraining the Growth of

Government

Efforts to contain government growth at the state and local level are known as tax and expenditure limitations.

TELs have a negative impact on the quality of local public services.

True-false questions

If false, change the statement to make it true.

1. If the price level is rising, an inflation-adjusted revenue or spending figure will for the current year always be lower than the unadjusted figure.

2. Government spending and taxes per capita are higher in the United States than in most other industrial countries.

3. If revenue sources are highly income elastic, that factor will restrain the growth of government.

4. Transfer payments are payments to individuals by governments for which no services are required in exchange.

5. The corporate income tax is the largest single source of federal government revenue.

Answers1. T

2. F (To correct, change higher to lower.)

3. F (To correct, the last phrase should read that factor will accelerate (or increase) the growth of government.)

4. T

5. F (To correct, change corporate to individual [or personal].)