Government Spending & Debt
Government Spending & Debt
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Government spending refers to all expenditures made by a government, which are used to fund public services, social benefits, and investments in capital. There are essentially two types of government spending: government current expenditures and government gross investment. Government current expenditures can be broken down into government consumption expenditures (spending to produce and provide services to the public), current transfer payments (spending on social benefits and other transfers), interest payments, and subsidies. Government gross investment encompasses spending on structures, equipment, and own-account production of structures and software.
Learn More How Does the Government Spend My Taxes? -
If government spending exceeds the revenue it makes via taxes and other sources, this results in what is known as a budget deficit. In order to make up the difference, a government borrows money by selling Treasury marketable securities to other federal government agencies, individuals, businesses, state and local governments, as well as people, businesses, and governments from other countries. Issuing this debt in turn raises the government’s overall national debt.
Learn More How Governments Reduce the National Debt -
As of July 2021, at $9.8 trillion, U.S. investors held the largest portion of the U.S. federal government’s $28.43 trillion total debt. The Federal Reserve owned the second-largest portion, at $5.3 trillion, which accounted for 53% of total U.S. federal debt when combined with the amount owned by U.S. investors. Various trust funds accounted for another 22% of federal debt, while the remaining 25% belonged to foreign investors, with Japan accounting for the largest share of this group at $1.3 trillion.
Key Terms
- Gross National Income (GNI)
Gross national income (GNI) represents the amount of money earned (as well as the costs incurred) in production by labor and property supplied by U.S. residents. GNI is equal to gross domestic income plus income received from overseas sources minus income payments made to the rest of the world.
- Infrastructure
Infrastructure consists of a business, region, or nation’s physical systems and facilities, which can be used in the production of public goods or services. Infrastructure is typically owned by state and local governments; however, some infrastructure is privately owned.
- Universal Basic Income (UBI)
Universal basic income (UBI) is a government program that provides monthly unconditional payments to every member of a community. UBI seeks to combat economic inequality and provide economic security by ensuring a basic standard of living.
- Balanced Budget
In the context of public sector budgeting, a balanced budget is one where the total expected government spending in a given period is equal to the amount of income it expects to receive during the same period. Balanced budgets avoid the debt burdens of deficits and the potential deflationary pressure of surpluses.
- Budget Surplus
When referring to a government’s financial state, a budget surplus is the result of fiscal revenue exceeding expenditures. While a surplus means having additional money to pay off debt or reinvest, it also removes that money from the wider economy, which can have a deflationary effect.
- Fiscal Deficit
A fiscal deficit is the result of a government’s spending exceeding its income. Although budget deficits cause an increase in national debt and represent a major systemic risk to an economy, deficit spending is also a way for governments to combat a recession.
- Debt Ceiling
The debt ceiling is the legal limit on the total amount of federal debt the U.S. government can accrue without risking a default on its legal obligations. Since 1960, Congress has acted 78 times to permanently raise, temporarily extend, or revise the definition of the debt ceiling.
- Bailout
A bailout is money and/or other resources provided to a struggling entity by a business, individual, or government. Bailout can include loans, bonds, stocks, or cash and may require reimbursement (potentially with interest), depending on the terms of the agreement.
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