Below is a graph made from the BEA ex post data on GDP depicting the combined Federal and State/Local government contributions to the GDP component "G"; ie 'Government Consumption Expenditures and Gross Investment".
I believe this "G" measured value is used to compute "the deficit", if we define "the deficit" as G-T.
Interesting to note that the State/Local government contributions to "the deficit" are sometimes near 2x the Federal contribution, when the Federal government's fiscal position is most often thought of when "the deficit" is talked about by policymakers.
"I believe this "G" measured value is used to compute "the deficit", if we define "the deficit" as G-T."
ReplyDeleteMatt,
All expenditure is included.
eg Z.1
http://www.federalreserve.gov/releases/z1/Current/z1.pdf
F.6 line 24 Q1 2013
$3023.7bn
F.105 line 10 itself is bigger than the above and doesn't count capital expenditures and State and Local govt.
The deficit used to calculate is F.105 numbers and F.104 numbers not F.6 numbers.
In simple models, we assume all government expenditure is on consumption and investment and interest payments and even in that model the two Gs are not the same due to interest payments. Real world is slightly more complicated.
"All expenditure is included."
ReplyDeleteas in: in the G in G-T.
Ramanan,
ReplyDeleteDo you mean 'all expenditure' as in 'all govt expenditure' ie including the state and local stuff as well as the Federal?
rsp,
Matt,
ReplyDeleteShould probably have said all all :)
Yes the way to do sectoral balances is to include all expenditures of not only the government but also state and local governments.
There is no specific rule to take them together and one can think of including only the Federal government but since the objectives of government institutions are different from others, it is useful to consolidate the state and local governments with the Federal government. So private is really private for example.
I follow... as far as the SBE... and understand the 'consolidated govt' makes sense for GDP....
ReplyDeleteBut the point I am trying to make is that you often hear the term "the deficit" by the Debt Doomsday people and what I think they are actually referring to is "the Federal govts fiscal balance" or something like that, ie "receipts - outlays" for the Federal govt only... or "deposits - withdrawals", etc...
rsp,
Matt, the federal deficit is not defined as G-T, if the variables 'G' and 'T' are being used in the way they are used in national income and product accounting.
ReplyDeleteThe federal budget deficit for any given fiscal period is the amount by which total federal outlays exceed total federal receipts.
G does not include transfer payments. But the deficit calculation includes all federal outlays.
G does include state and local spending. The federal deficit calculation does not include that spending because it is unrelated to the budget position of the federal government.
This series includes transfer payments, etc…
ReplyDeletehttp://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&910=X&911=0&903=86&904=2011&905=2013&906=A
This one doesn't…
http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&910=X&911=0&903=87&904=2011&905=2013&906=A
I think the first one is a reasonably accurate estimate of G-T…I don't know for sure.
Upon further review, the second series, not the first correlates closest to the data from the Treasury over history (I think)…
ReplyDeleteHere's that data…
https://dl.dropboxusercontent.com/u/33741/debthist01z1.xls
Confusing it is.
Dan,
ReplyDeleteI think the G-T is also referred to as 'the public balance' related to the SBE stuff...
But here is Godley:
"The nominal budget deficit, DEFICIT, is
DEFICIT ≡ GT – T (19) "
http://www.levyinstitute.org/pubs/wp_494.pdf
Page 8
We perhaps should be careful then when we say "deficit spending" as that could mean 'spending during a period when G>T' or 'spending during a period when Federal outlays > receipts'....
rsp,
Don't forget W's off-budget war spending that did not increase the deficit but was funded with tsy issuance, increasing total debt toward the imposed debt limit.
ReplyDelete"Don't forget W's off-budget war spending"
ReplyDeleteActually, off-budget spending began in 1937, according to the data I linked to above, and is still going on, although at a significantly reduced rate.ofdbyl 282
Dan,
ReplyDeleteThis is from Bill:
"From the sources perspective we write:
GDP = C + I + G + (X – M)
which says that total national income (GDP) is the sum of total final consumption spending (C), total private investment (I), total government spending (G) and net exports (X – M).
From the uses perspective, national income (GDP) can be used for:
GDP = C + S + T
which says that GDP (income) ultimately comes back to households who consume (C), save (S) or pay taxes (T) with it once all the distributions are made.
Equating these two perspectives we get:
C + S + T = GDP = C + I + G + (X – M)
So after simplification (but obeying the equation) we get the sectoral balances view of the national accounts.
(I – S) + (G – T) + (X – M) = 0
That is the three balances have to sum to zero. The sectoral balances derived are:
The private domestic balance (I – S) – positive if in deficit, negative if in surplus.
The Budget Deficit (G – T) – negative if in surplus, positive if in deficit.
The Current Account balance (X – M) – positive if in surplus, negative if in deficit."
So Bill has 'the budget deficit' as G-T so maybe Bill is talking about a different G and different T than what the BEA monitors/tracks ex post as the BEA has the State/Local stuff in there... strip out the state/local stuff and add xfers back into T and the identity still holds...
rsp,
Let's try to clear this up.
ReplyDeleteWe start with the product-expenditure identity (1), where
Y = C + I + G + X - M
and G does not include transfer payments (TR), because transfers do not pay for new production of goods and services - which GDP attempts to measure.
and then we go to the disposable-income identity (2) where
YD = Y - T + TR = C + S
This means: YD is disposable income, income net of transfers and taxes. This is the income which remains available for either purchases or saving.
Re-arranging (2) we get (2')
Y = C + S + (T - TR)
Where (T - TR) is net taxes, or taxes after transfers.
With identities (1) and (2') we get to the sectoral balances identity
G - (T - TR) = (S - I) + (M - X)
The budget deficit (G without transfers minus net taxes) equals the private sector surplus plus the foreign-sector deficit.
Hope this helps.
Also notice that the budget deficit stays the same if we properly deduct trasnfer payments in every case.
ReplyDeleteWe can have figures from the government's accounts, needed to vote for appropriations etc.
In this case government expenditure is G + transfer payments (in certain cases transfers payments may be of an amount close to G itself, see the cases of strong safety net countries such as Sweden, Denmark etc.) and taxes is gross taxes.
For GDP accounts we have G and net taxes (T - TR) to compute the deficit.
However, since (G + TR) - T is necessarily equal to G - (T - TR) the budget deficit figures are the same in both cases.
Jose,
ReplyDeletethanks glad you weighed in...
So does G have the state/local govt spending in there?
rsp,
I'm not exactly an expert on US government accounting at federal and state level (Brazilian and European economics already keep me confused enough...LOL) but I would say that the numbers to prepare the budget(s) should logically include (G + TRansfers) at all levels in order to estimate and compute and authorize expenditures - and gross taxes to compute and estimate revenue.
ReplyDeleteAs for NIPA, G is pure G without taxes and (T - TR) is net taxes.
The deficit numbers (the subtraction of "revenues" from "expenditures") should stay the same under both scenarios, for the reasons we've already talked about.
Here is the US President's budget for 2014:
ReplyDeletehttp://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/tables.pdf
Page 189 has the Federal components of G and T looks like somewhere in there.....
Doesnt look like they have the state and local stuff in there, this looks like all Federal... I guess they are not trying to "drive GDP"... as this is just the Federal components and GDP has the state and local components in G...
So you can see the lack of a tie-in to GDP at the Federal level.... they are not trying to foment a certain GDP/output.... 'nobody in charge' type of thing... very libertarian...
rsp,
Matt,
ReplyDeleteIt´s OMB numbers, so they´re probably not concentrating on GDP/output of goods and services at all.
They´re just worried about: on what items - and how much - to spend and where to find "revenue".
For impact on GDP, one should go perhaps to the CEA - and, of course, to the statisticians of NIPA as a matter of record.