A Small Government: US Federal Budget as Proportion of the Economy

11 Dec

The US federal budget is larger than that of any other country in absolute terms. The US government spends more than $2.3 trillion every year, about $500 billion dollars more than Japan, which has the second largest budget in the world at around $1.7 trillion.

Yet, as a proportion of the economy, the US federal government budget is small. The US federal budget of $2.3 trillion is about one-fifth (.197) of its $12.5 trillion GDP. The average budget-to-GDP ratio in developed countries in Europe is about twice as much. For example, UK’s budget of $951 billion is nearly half of its $2.228 trillion GDP, while France’s budget of $1.144 trillion is a little more than half of its $2.055 trillion GDP. The US budget-to-GDP ratio is closer to the ratios in the developing world. For example, India’s GDP of $720 billion is nearly five times bigger than its budget of about $135 billion. Surprisingly, the US budget-to-GDP ratio also matches the ratio of its left-leaning northern neighbor, Canada.

Petro-economies like Saudi Arabia have budget-to-GDP ratios that fall between those of the developing world and the developed economies in Europe. Petro-economies also fall in the middle in terms of budgetary dollars spent per person. Nigeria, unsurprisingly, is an exception in this regard, with budget numbers far below that of other petro-economies.

In terms of dollars spent per person, United States is far behind developed EU economies. The budgetary allocation per person in the EU is more than double that in the US.

There are two key caveats in interpreting all this. An exclusive focus on the federal budget understates the total government spending for countries with strong federal structures like the US. But the good thing is that federal spending and state and local spending are not inversely proportional in countries with strong federal structures but are strongly correlated. Hence, while relying solely on federal budgetary expenditure does understate the impact, it doesn’t do it by as big a margin as one would expect. Take, for example, the US, whose total budget at the state level is around $600 billion, adding which pushes total government spending to $3 trillion or still about .25 of the GDP.

Secondly, one must look at not only the size of the budget but also where it is spent. For example, the US military budget accounts for a fifth of its net budget by conservative estimates. In sheer numbers, US military budget exceeds the total military spending of the rest of the world, but in terms of its size relative to US GDP, it is a measly 4%.

Developed countries pool:

Country

GDP (in trillions, 2005 estimate, unless mentioned otherwise)

Budgetary Expenditure (in trillions, 2005 est. unless mentioned otherwise)

Proportion of budget/GDP

Population
(millions)
(2006 est.)

Budget expenditure per
Person (thousands)

Germany

$2.73

$1.362

.498

82.4

16.529

France

$2.055

$1.144

.556

60.6

18.877

UK

$2.228

$.951

.426

60.4

15.74

Italy

$1.71

$.8615

.503

58.1

14.827

Norway

$246.9 billion

$131.3 billion

.531

4.5

29.177

Switzerland

$367 billion

$143.6 billion

.391

7.48

19.197

Asia Pacific

Japan

$4.664

$1.775

.380

127.4

13.932

Australia

$612.8 billion

$240.2 billion

.391

20.09

11.95

Developed North American economies

USA

$12.49 trillion

$2.466 trillion

.197

295.7

8.3395

Canada

$1.035

$152.6 billion(est. 2004)

.147

33.09

4.611

Developing country pool:

Country

GDP (2005 est.)

Budgetary Expenditure (2005 est.)

Proportion of budget/GDP

Population
(millions)
(2006 est.)

Budget expenditure per
Person

India

$720 billion

$135 billion

.1875

1,095

123

Pakistan

$89.55 billion

$20.07 billion

.223

162

124

Indonesia

$270 billion

$57.7 billion

.213

245

235

Brazil

$619.7 billion

$172.4 billion

.278

186

927

China

$2.225 trillion

$424.3 billion

.190

1,306

325

Chile

$115.6 billion

$24.75 billion

.214

16

1546

Petro-economies

Iran

$181.2 billion

$60.4 billion

.333

68

888

Saudi Arabia

$264 billion

$89.65

.339

27

3320

Venezuela

$106.1 billion

$41.27 billion

.388

25.375

1626

Nigeria

$77.33 billion

$13.54 billion

.175

128

105

All figures from CIA World Fact Book which can be accessed at: https://www.cia.gov/redirects/factbookredirect.html