The Federal Budget as a Percent of GDP

On Friday, the government released its first estimate of third-quarter GDP. This number will be updated a few more times as the government collects more data.

There’s one overlooked fact of this report and it’s that we now know what the GDP was for the government’s fiscal year (which ends on September 30th). For the 2012 fiscal year, nominal GDP was $15.54 trillion which was an increase of 4.1% over FY 2011. Again, this will be updated but we can safely assume that GDP will generally be in that vicinity.

With nominal GDP under our belt, we now know what the government’s spending, revenue and deficit was as a percent of GDP. In FY 2012, the federal government spent 22.77% of GDP while it took in 15.76% of GDP. The deficit came to 7.01% of GDP.

This is the third-straight year the deficit as a percent of GDP has fallen. In FY 2009, the deficit was a staggering 10.12% of GDP. The big change last year was that spending fell from 24.13% to 22.77%. The spending side even dropped below the peak from the 1980s.

Revenue as a percent of GDP is the highest it’s been in four years (15.76%). It’s not far from from FY 2004 when it reached 16.10%.

What I find fascinating is that revenue as a percent of GDP has averaged about 18% of GDP for the last 60 years. In fact, until the Great Recession, it didn’t deviate much from 18%.

There’s Hauser’s Law which states that government revenues “since World Was II have always been approximately equal to 19.5% of GDP.” I wouldn’t go so far as to endorse this phenomenon as a law, but I do think it’s interesting how long the relationship has held up.

Posted by on October 28th, 2012 at 12:09 am


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