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4. Growth of transfer payments

Transfer outlays, on the other hand, grew at an annual rate of 10.9%; and, as a proportion of total government spending, rose from 18.7% in 1953 to 36.5% in 1978. In other industrial countries studied by this writer transfer outlays now represent more than half of total government spending (Beck (1976 and 1979)).

Unlike government purchases of goods and services, for which the Commerce Department regularly publishes an implicit price deflator, transfer outlays are not readily transformed into a constant-dollar equivalent. A review of the literature failed to produce useful insights into the problem. The composition of government spending was then studied for clues to the desirable characteristics of a working deflator for transfer outlays.

Since the bulk of these outlays – about 90% in recent years – constitute transfers to persons, the decision boiled down to a choice between the CPI (Consumer Price Index) and the Commerce Department's PCE (Personal Consumption Expenditures) deflator. The latter, a Paasche-type index using current-year weights, was consistent with the other deflators needed to produce a measure of public-sector size; whereas the CPI relied on fixed weights derived from the experience of urban households. Hence, the decision to experiment with the PCE deflator.

The deflated value of transfer outlays in 1978 – $105 billion – is 54 times that of 1953 (line 9). In real terms these outlays grew at an annual rate of 7.1% – more than twice the growth rate of real GNP or total government spending. From 19% of the total in 1953 the real value of transfer expenditure had risen to 44% of the total in 1978.

It is clear from the foregoing that growth of the U.S. public sector in recent decades is attributable to the sharp rise in transfer payments, and not to outlays which benefit the entire public. Implications for total government spending are discussed below.

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5. A deflator for total government spending

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As previously noted, total government spending in the U.S. amounted to $684 billion in 1978, nearly seven times the total of 1953. Expressed in 1953 dollars, the 1978 total becomes $238 billion, the sum of the main components stated in 1953 dollars. The deflated total represents an increase of 135% over the corresponding value of 1953, and its annual growth rate over the period becomes 3.5%.

The behavior of total government spending in real terms stands in sharp contrast

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Dubin (1977) employed a similar index the OECD deflator for private consumption expenditure – for all transfer outlays other than government subsidies. He chose to deflate the latter by the index for government consumption expenditure. No explanation for this treatment is offered in his one-page comment on Beck (1976).

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to the 7.9% growth rate of nominal expenditure. More significant, perhaps, the growth rate of real expenditure by all governments in the United States was only slightly higher than the 3.3% growth rate of real GNP. Hence, real size of the public sector, measured by the ratio of real expenditure to real GNP, grew only by one percentage point – from 28% in 1953 to 29% in 1978.

From the above data one may derive a deflator for total government spending – a price or cost index for all government outlays. (The Commerce Department's deflator for government purchases applies only to resource-absorbing outlays.) For a given year the value of the deflator is the ratio of total expenditure in current dollars to the total in constant dollars. For 1978 the value of the deflator (1953 = 100) is 287.0, and the compound annual increase for the period is 4.3% (line 15).

The results obtained in this exercise are far from definitive. To judge from the literature, they represent the first systematic attempt to obtain a deflator which can be used to measure changes in real size of the total public sector. Further research is needed to uncover alternative measures which may be useful in the current debate over the size of government.

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References

Beck, Morris, 1976, The expanding public sector: Some contrary evidence, National Tax Journal,

March.
Beck, Morris, 1979, Inflation, government spending, and real size of the public sector, Atlantic

Economic Journal, Sept.
Dubin, Elliott, 1977, The expanding public sector: Some contrary evidence A comment,

National Tax Journal, March.
Peacock, Alan T. and Jack Wiseman, 1968, The growth of public expenditure in the United

Kingdom (Allen and Unwin, London).
Peacock, Alan T. and Jack Wiseman, 1979, Approaches to the analysis of government expendi-

ture growth, Public Finance Quarterly, no. 1.

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JANUARY 15, 1979 Mr. DECONCINI (for himself and Mr. GOLDWATER) introduced the following joint resolution; which was read twice and referred to the Committee on the Judiciary

JOINT RESOLUTION

To require the Federal Government to end deficit financing.

1 Resolved by the Senate and House of Representatives of 2 the United States of America in Congress assembled (two3 thirds of each House concurring therein), That the following 4 article is hereby proposed as an amendment to the Constitu

5 tion of the United States, which shall be valid to all intents

6 and purposes as part of the Constitution when ratified by the 7 legislatures of three-fourths of the several States within

8 seven years after its submission to the States for ratification:

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“SECTION 1. In exercising its powers under article I of 3 the Constitution, and in particular its powers to lay and col4 lect taxes, duties, imposts, and excises and to enact laws

5 making appropriations, the Congress shall seek to assure that

6 the total outlays of the Government during any fiscal year do

7 not exceed the total receipts of the Government during such

8 fiscal year.

9 “Sec. 2. No later than the twentieth day after the close 10 of each fiscal year, the President shall —

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“(1) ascertain the total receipts of the Govern

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ments during such fiscal year, not including any receipts derived from the issuance of bonds, notes, or

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other obligations of the United states, and not includ

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ing any receipts from any income tax surtax imposed

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under this article;

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“(2) ascertain the total outlays of the Government during such fiscal year, not including any outlays for the redemption of bonds, notes, or other obligations of

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the United States; and

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“(3) if the total receipts described in paragraph (1)

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are less than the total outlays described in paragraph (2), determine the percentage rate of income tax

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surtax, to be imposed as provided in section 3, which

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is necessary to provide an additional amount of reve

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