Section 1

The Economics of Government Spending

• Pork is a popular trend used by politicians to satisfy their constituents.

• Taxpayers generally would not approve of projects otherwise.

• Spending that is intended to primarily benefit only those constituents of a politician in return for their political support.

Section 1

Government Spending in Perspective (cont.)

• Spending by the public sector has increased sharply since the Great Depression.

– Change in public opinion gave government a larger role in daily economic affairs.

– Massive government spending funded the U.S. involvement in World War II.

Section 1

Government Spending in Perspective (cont.)

• Some people question which goods and services government should provide versus what the private sector should provide.

• Example: Who should pay for a new bridge to Canada? Who would it benefit?

Section 1

Government Spending in Perspective (cont.)

• Government makes two kinds of broad expenditures:

– Purchase of goods and servicesEx: Roads, Buildings, Equipment,

Salaries

– Transfer payment – Ex: Social Security, Unemployment, Welfare

• Grant-in-aid – Ex: intergovernmental transfers

Section 1

• Government spending influences

– Resource allocation—if government withdraws subsidies to farmers, resources become available to other industries.

– Distribution of income

– Production in the private sector

– Tax burden increases

Impact of Government Spending (cont.)