1. What determines government spending In pairs, why might government spending be high or low

2. Why gov’t spending is high or low: Political ideology – In some countries, the predominant view is that individuals should look after themselves, tax rates should be low, and the government’s involvement in the economy should be limited eg. US, Singapore – In other countries, more government involvement is valued – there is more of a social safety net, necessitating higher taxes to pay for it all eg. Sweden, Norway – What about the UK? – Which country has the highest/lowest government spending as % of GDP?

3. Size of Government CountryGov’t spending % GDP 2014 Denmark58 France56 Greece52 Portugal49 United Kingdom48 Ireland48 Germany45 Canada42 United States42 Japan42 Switzerland34 South Korea30 China24 Singapore17

4. Government Spending Terminology Fiscal policy – the use of government spending, taxation and borrowing to influence the level and growth of aggregate demand, output and employment – When the economy is weak, the government may cut taxes or increase spending to boost demand Budget Deficit – when the government spends more than it receives in tax revenue – gov‘t must borrow to make up the shortfall – each round of borrowing adds to gov’t debt

5. Government Spending Terminology Budget Surplus – when the government spends less than it receives in tax revenue – The extra money can be used to pay down any outstanding debt Government Debt – the total accumulation of all the money owed by gov’t – each new deficit adds to the total debt – debt can grow quickly because of interest owing on it – How much does the UK owe? Is this a high figure?

6. Stock versus Flow? (Debt, Surplus, Deficit?) Government Spending Terminology

7. Why spending is high or low? Population demographics – eg. an ageing population One off events, eg. natural disaster, war, financial crisis State of the economy - When the economy is weak there will be an increase in spending on benefits to support those who lose jobs or have lower income and an increase in spending on public services as some people switch from paying privately

8. Government spending 3 main items of government spending: 1.Public Goods: eg defence, fire brigade, street lights - goods/services that the free market would not provide 2.Merit goods: eg. health, education, transport - these could be provided by markets, but would only be available to those who could afford them. Our society has decided that some goods should be available to everyone, so gov’t provides them 3.Transfers (not part of G in aggregate demand) - money given by gov’t to those who are disadvantaged, eg unemployed, sick/disabled, and also pensions

9. UK government spending 20102015 £billionSpending% GDPSpending% GDPNote Health Care1177.8%1347.4%Merit good Education885.9%844.6%Merit good Transport231.5%191.1%Merit good Total merit goods22815.2%23713.1% Defence432.9%452.5%Public good Protection342.3%301.7%Public good Total public goods775.1%754.1% Pensions1167.7%1508.3%Transfer Welfare1117.4%1116.1%Transfer Total transfers22715.1%26114.4% Interest312.1%462.5%Ouch General Government161.1%140.8%Various Other Spending946.3%1136.3%Various Total Spending67344.9%74841.4% GDP1,5001,808 Source: ukpublicspending.co.uk

10. Data