How Productive Is Government Spending?

In its 2018 fiscal year, which ended on September 30, 2018, the U.S. government spent over $4.11 trillion dollars.

Meanwhile, state and local governments throughout the country spent a total of $3.74 trillion dollars, which when combined with federal spending, gives us a total of $7.85 trillion spent by governments at all levels in the United States during 2018.

That’s certainly quite a lot of money, but did you ever wonder how much of that money was spent productively?

One way to find out the answer to that question is to see how much of all that government spending by the federal government and by state and local governments adds to the U.S. economy’s gross domestic product. The chart below shows the answer as provided by the Bureau of Economic Analysis’ latest estimate of GDP for the third quarter of 2018, which ended at the same time as the U.S. government’s 2018 fiscal year.

It turns out that just 32 percent (or $1.33 trillion) of the federal government’s spending can be considered to be productive based on its contribution to the nation’s GDP. Meanwhile, state and local government spending is considerably more productive, with 59 percent (or $2.22 trillion) of 2018’s spending by these governments counting toward U.S. economic output. For all levels of government in the United States, 45 percent of all government spending ($3.55 trillion) can be considered to lead to a productive outcome.

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Craig Eyermann is a Research Fellow at the Independent Institute and the creator of the Government Cost Calculator at MyGovCost.org.