OPINION

Understanding The United States By Numbers: The Small Government

December 13, 2006
spincycle

The US federal budget is larger than that of any other country in absolute dollar terms. The US federal government spends more than $2.3 trillion every year or about $500 billion dollars more than Japan, which boasts of second largest budget in the world at around $1.7 trillion. Yet, if we look at the numbers a little more closely, we can see that by some measures the US federal government is indeed small.

The US government's footprint, as measured by ratio of budgetary expenditure on the economy to GDP seems comparatively much lower than that of developed European economies. The US federal budget at about $2.3 trillion is about one fifth (.197) of its $12.5 trillion GDP whereas the average budgetary expenditure to GDP found in developed countries in Europe is on average twice as much. For example, the UK's budget is $951 billion or nearly half of its $2.228 trillion GDP while France's budget is $1.144 trillion or a little more than half of its $2.055 trillion GDP. The US's budget (or budgetary expenditure) to GDP ratio is closer to the ratios found in the developing world. For example, India's GDP of $720 billion is nearly a five times bigger than its budget of about $135 billion. Surprisingly, the US's ratios also match the ratios of its socialist leaning northern neighbor Canada, which one would imagine would share more with developed European countries than the US.

Petro-economies like that of Saudi Arabia had budget to GDP ratios that fell between that of the developing world and developed economies in Europe, as expected. Petro-economies also fell in the middle in terms of budgetary dollars spent per person. Nigeria, unsurprisingly, was an exception in this regard with budget numbers far below that of petro-economies.

In terms of dollars spent per person, the United States is far behind developed EU economies; the budgetary allocation per person in the EU is more than double that in the US. This can be interpreted as a sign of a relatively small government.

There are three key caveats in the numbers that I present below and the analysis that I have presented above. The first deals with questioning whether the ratio of federal budgetary expenditure to GDP is in fact a sound measure for the size of government. One may argue that federal budgets in absolute dollar terms are better measures for the sheer size of government. The problem with using absolute dollar amounts alone is that they reveal as much as they hide for the size of budgetary outlay, though most strongly dependent on GDP, is also impacted by population size, tax receipts and much more. The ratio of budgetary expenditure and GDP provides us with a useful measure for estimating the impact (or contribution) of government spending on the economy.

The second caveat deals with exclusive focus on federal budget rather than on total government spending that includes spending at state and local level. In particular, focus on federal budget will understate the government spending for strong federal governments like the US. While that is true, it appears that federal spending and state and local spending are not inversely proportional in countries with strong federal structures but are strongly correlated, and that state spending even in strong federal countries is comparatively much smaller than the federal spending. Hence, while relying solely on federal budgetary expenditure does understate the impact, it doesn't do it by as big a margin as one would expect. Take for example, the US, whose total budget at state level is around $600 billion, adding which pushes total government spending to $3 trillion or still about .25 of the GDP.

The third caveat one must look at it is not only the size of budgetary spending but where it is spent. For example, the US military budget accounts for a fifth of its net budget by conservative estimates. In sheer numbers, the US military budget exceeds the total military spending of the rest of the world but in terms of its size relative to US GDP, it is a measly four per cent.

Developed countries pool:
Country GDP (in trillions, 2005 estimate, unless mentioned otherwise) Budgetary Expenditure (in trillions, 2005 est. unless mentioned otherwise) Proportion of
budget/GDP
Population (millions)
(2006 est.)
Budget expenditure per Person (thousands)
Germany $2.73 $1.362 .498 82.4 16.529
France $2.055 $1.144 .556 60.6 18.877
UK $2.228 $.951 .426 60.4 15.74
Italy $1.71 $.8615 .503 58.1 14.827
Norway $246.9 billion $131.3 billion .531 4.5 29.177
Switzerland $367 billion $143.6 billion .391 7.48 19.197

Asia Pacific

Japan $4.664 $1.775 .380 127.4 13.932
Australia $612.8 billion $240.2 billion .391 20.09 11.95

Developed North American economies

USA $12.49 trillion $2.466 trillion .197 295.7 8.3395
Canada $1.035 $152.6 billion(est. 2004) .147 33.09 4.611

Developing country pool:
Country GDP (2005 est.) Budgetary Expenditure (2005 est.) Proportion of budget/GDP Population
(millions)
(2006 est.)
Budget expenditure per
Person
India $720 billion $135 billion .1875 1,095 123
Pakistan $89.55 billion $20.07 billion .223 162 124
Indonesia $270 billion $57.7 billion .213 245 235
Brazil $619.7 billion $172.4 billion .278 186 927
China $2.225 trillion $424.3 billion .190 1,306 325
Chile $115.6 billion $24.75 billion .214 16 1546

Petro-economies

Iran $181.2 billion $60.4 billion .333 68 888
Saudi Arabia $264 billion $89.65 .339 27 3320
Venezuela $106.1 billion $41.27 billion .388 25.375 1626
Nigeria $77.33 billion $13.54 billion .175 128 105
All figures from CIA World Fact Book:

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Understanding The United States By Numbers: The Small Government

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Author: spincycle

 

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#1
Ruvy in Jerusalem
December 13, 2006
05:02 AM

Whoever edited and published this article needs to go back and edit the font size of the table provided at the end so that it fits within the parameters of the space provided....

#2
mohan
December 13, 2006
09:04 PM

so wat exactly is ur point? uve done some brilliant analysis, but wat are u trying to say using that?

#3
mohan
December 13, 2006
09:04 PM

agreed the us spends less, so?

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