Government Spending

Government spending can be divided into several categories. Purchases of goods and services, such as salaries for teachers and soldiers and spending on equipment, count directly in GDP. Public investment, such as roads, schools and hospitals, adds to the country's capital. Transfer payments, such as pensions and unemployment benefits, redistribute income but do not count directly in GDP. Interest on government debt is another major item.

For example, a government might spend a large share of its budget on social protection, health and education, with smaller amounts on defence, transport and public order.

Government spending is a key part of fiscal policy. Increasing spending can support demand during recessions, while cutting spending can help reduce deficits.

The level of government spending as a share of GDP varies widely between countries, reflecting different choices about the role of the state. Debates about spending often focus on its efficiency, how it is financed and its effects on growth and inequality.