5 - GOVERNMENT SPENDING AND TAXATION

Abstract

This chapter discusses government spending and taxation. The role of government in the economy is not limited to its tax and spending activities. Public policy also defines property rights, enforces contracts, regulates business activities, and often imposes price floors (or ceilings) for various products. In recent years, government regulatory activities have expanded substantially. In fact, some economists now argue that government expenditures are not an adequate measure of the economic significance of the public sector, since they fail to register fully the importance of regulatory actions. Nonetheless, taxation and government expenditures are the most direct means by which the government influences the economy. There are three levels of government in the United States, the federal, the state, and the local levels, the major responsibilities of which differ considerably. A breakdown of expenditures and taxes will highlight some of these differences. The federal government spends the most of the three, approximately three-fifths of total government expenditures.