Built-In Flexibility of Federal Expenditures

Abstract

THE PAST DECADE HAS WITNESSED a fairly rapid growth in federal expenditures, in both absolute and relative terms. Numerous new programs have been introduced and existing programs expanded. As can be seen in Table 1, federal expenditures have risen from less than 18 percent of potential gross national product (GNP) in 1961, to about 20 percent in 1970 and are scheduled to rise even further in 1972. They have outpaced total federal revenues, which as a percent of potential GNP also rose between 1961 and 1970, but will decline somewhat when the tax legislation of 1969 and 1971 becomes fully effective. The shift in the percentages reflects the disappearance of the large full employment surplus that prevailed in the early 1960s and the prospective emergence of a full employment deficit. The composition of expenditures has altered markedly. Transfer payments and grants-in-aid to state and local governments have grown rapidly over the past decade and purchases of goods and services have declined in importance. Transfers and grants together have risen from 5.8 percent of potential GNP in 1961 to 8.4 percent in 1970 and are scheduled to rise to 10.2 percent in 1972. The decline in defense purchases over the decade has been marked, and it has been offset only partially by rising nondefense purchases. In light of the changes in both composition and size of expenditures it