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Fiscal Policy: Taxes, Spending,
and the Federal Budget
ECONOMICS: Principles and Applications 3e
HALL & LIEBERMAN
© 2005 Thomson Business and Professional Publishing
Figure 1 Federal Government
Purchases as a Percentage of GDP
14%
Purchases/ GDP
12%
10%
Total Government Purchases
8%
6%
Military Purchases
4%
2%
Nonmilitary Purchases
Figure 2 Major Federal Transfer
Programs, 2003
Retirement
Benefits
$478 billion
Health
(Medicare
and others)
$468 billion
Income
Security
$330 billion
Figure 3 Federal Transfer Payments
as a Percentage of GDP
14%
Transfers/ GDP
12%
Over the last several decades,
federal transfers have trended
significantly upward.
10%
8%
6%
4%
They also rise temporarily during
recessions, such as in the early
1980s, 1991, and 2001.
2%
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2003
Figure 4 Federal Government Interest
Payments as a Percentage of GDP
4%
Interest/GDP
3%
2%
1%
Figure 5 Total Federal Outlays as
a Percentage of GDP
Federal Outlays/GDP
25%
20%
They also tend to rise
during defense buildups
or recessions . . .
15%
Total federal outlays
have trended slightly
upward relative to GDP.
and fall during
strong expansions.
10%
19601964196819721976198019841988199219962000 2003
Table 1 Sources of Federal
Revenue, 2003 (Estimated)
Table 2 The 2002 Personal Income Tax
for a Married Couple with Two Children
Figure 6 Federal Government
Revenue as a Percentage of GDP
25%
Revenue/GDP
20%
15%
Federal Government Revenue
Income, Profit and Excise Taxes
10%
5%
Social Security Taxes
Figure 7a The Federal Budget Deficit or
Surplus as a Percentage of GDP
(a)
Federal Outlays and Revenue,
Percent of GDP
25%
20%
15%
10%
Outlays
Deficit
Revenue
Figure 7b The Federal Budget Deficit or
Surplus as a Percentage of GDP
(b)
4%
Surplus (+) or Deficit (-),
Percent of GDP
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
7%
Debt/GDP
Figure 8 Federal Debt as a
Percentage of GDP
110%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Figure 9 Countercyclical Fiscal
Policy
AE1
Real Aggregate
Expenditure
($ Billions)
A
AE2
B
45°
Real GDP ($ Billions)
$9,000
$10,000
(Recession (Full-Employment
Output)
Output)
Table 3 Projected Budget Deficits
and the Rising National Debt
Table 3 Projected Budget Deficits
and the Rising National Debt