GOVERNMENT SPENDING AND TAXATION

United States Government Spending and Taxation Versus Other Countries

Abstract

It is well known that total government spending relative to GDP is higher in Canada than in the United States, but it is less clear where exactly Canadian governments spend more (or less) than their American counterparts. The reason for the confusion is that there are no readily available, internationally consistent statistics on consolidated government spending by function. This study adjusts data from national sources in order to develop reasonably comparable series for total government spending by function in Canada and the US. Based on these new series, we identify which spending categories explain the gap in spending between the two countries and we examine changes in the composition of spending between 2002 and 2008. We find that the most important category in explaining the gap in program spending between the two countries is income security, which includes, among other things, all social assistance and public pension benefits. Spending on health and education relative to GDP is virtually the same in both countries. Over time, the gap between program spending relative to GDP in the two countries has been reduced substantially. The main categories in which the gap was narrowed were income security, economic affairs (which includes, among other things, transportation and communications, and natural resource conservation and industrial development) and education.

United States Government Spending and Taxation Versus Other Countries

Introduction

It is well known that total government spending relative to GDP is higher in Canada than in the US. In 2008, total Canadian government outlays amounted to 38.0 per cent of GDP, compared with only 31.2 per cent in the US (according to OECD (2002), on a national accounts basis). Higher debt service payments accounted for just under half of this difference, 1 but program spending - all spending less debt charges - relative to the size of the economy was still 3.6 percentage points higher in Canada than in the US (31.4 per cent of GDP in Canada compared with 27.8 per cent in the US). It is not well known where exactly Canadian governments spend more (or less) than their American counterparts. Piecemeal information indicates some areas where spending in the two countries differs - for example, spending on national defence is known to be lower in Canada - but this does not permit a rigorous analysis of the gap in program spending in the two countries.

The reason for the confusion is that there are no readily available, internationally consistent statistics on consolidated government spending by function. This paper helps fill that void by adjusting existing data on spending by function from Canadian and US sources to enhance comparability. The new series are then used to explain the main differences in spending patterns between the two countries.?

The paper begins by describing the data sources that are generally used for international comparisons of government spending and the problems associated with these sources. Next, section 3 describes the data sources used in this paper and the adjustments ...