1 Public Finance Public finance is the field of economics that studies government activities and the alternative means of financing government expenditures.

1

Public Finance Public finance is the field of economics

that studies government activities and the alternative means of financing government expenditures.

2

Government Governments are organizations formed to

exercise authority over the actions of persons who live together in a society and to provide and finance essential services.

3

Political Institutions Political Institutions are rules and generally

accepted procedures that evolve for determining what government does and how government outlays are financed.

4

Government Expenditures in the United States

Government purchases of labor land capital

Government Transfer Payments Welfare Social Security

5

Growth in Government Expenditures

Table 1.1 (abbreviated)

Year GDP Federal Government

State and Local

Government

Total Government

Percentage of GDPTotal

1930 91.3 2.5 7.5 10.0 10.95

1945 223.0 84.7 8.5 93.2 41.79

1960 527.4 85.8 34.1 119.9 22.73

1975 1635.2 345.4 152.1 497.5 30.42

2002 10442.1 2073.9 1050.9 3124.8 29.93

6

International ComparisonsCountry Government Current Expenditures

as a Percentage of GDP 2001

Denmark 49.1

France 48.8

Germany 45.1

United Kingdom 39.4

Japan 38.1

Canada 36.7

United States 31.9

7

Figure 1.3 Total Government Expenditure as a Percentage of GDP 1929-2002

8

Figure 1.4 The Distribution of Federal Expenditure, 1966-2002

9

Federal Government Expenditures by Function

10

State and Local Government Expenditures

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State and Local Expenditures (millions)

Combined State Local

Capital 226,783 84,765 142,017

Education 594,590 162,054 432,536

Public Welfare 279,597 239,903 39,694

Highways 115,467 71,248 44,219

Utility 138,783 20,278 118,504

Public Safety 156,779 55,682 104,442

12

Federal Revenues

13

State and Local Government Revenues

14

State and Local Revenue (millions)Combined State Local

Intergovernmental 360,534 335,422 398,497

Taxes 904,961 535,241 369,720

Property Tax 279,111 9,702 269,409

Sales 324,039 262,360 61,679

Income Tax 202,858 185,696 17,161

Education 72,401 55,166 17,235

Utility 102,338 11,935 90,402

15

Annual Budget Differential (billions)

-600

-400

-200

0

200

400

1970 1975 1980 1985 1990 1995 2000

Total On-Budget Off-Budget

16

Budget Differential as % of GDP

-7.0-6.0-5.0-4.0-3.0-2.0-1.00.01.02.03.0

1970 1975 1980 1985 1990 1995 2000

17

Federal Debt (trillions)

0

2

4

6

8

1970 1975 1980 1985 1990 1995 2000

Total Public Fed Gov Accts

18

Federal Debt as % of GDP

0.0

20.0

40.0

60.0

80.0

1970 1975 1980 1985 1990 1995 2000

Total Public Fed Gov Accts

19

Government Expenditures (% GDP)

0.0

10.0

20.0

30.0

40.0

1970 1980 1990 2000

Total Federal State and Local

20

Budget Differential-State and Local (billions)

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

1970 1975 1980 1985 1990 1995 2000