Government Expenditures are Inefficient as a Factor behind Economic Growth

As it is known, one of the instruments of support or revitalization of economic growth is motivation of the economy by means of government expenditures. A number of experts refer to that factor in order to justify the need of a budget deficit in the mid-term prospect. However, a simple analysis of the structure of growth in expenditures on ultimate consumption points to the fact that efficiency of state expenditures as a factor behind economic growth is rather low.


Let us consider two components of the ultimate consumption: on account of households’ expenditures and on account of government expenditures. In the past ten years, nominal growth rates of them both were quite comparable:

However, if growth rates of physical volumes are compared it becomes clear that consumption on account of households’ expenditures grew faster in real terms than that on account of government expenditures. 

With comparable growth rates of the nominal volume, growth rates of the physical volume of households’ expenditures exceed manifold those of the physical volume of government expenditures.  If the 2009–2010 period is not taken into account that difference amount to threefold to fivefold.

Let us single out the contribution of the increase in the physical volume to growth in the nominal value of expenditures on ultimate consumption.

In growth of households’ expenditures on ultimate consumption, the contribution of the increase in its physical volume amounted to 35% to 64%, while growth in prices accounted for the remaining portion (in 2009 growth in nominal expenditures was accompanied by a real drop in households’ consumption).  

Singling out of the import component is another issue. In the past few years, in the retail trade turnover import goods accounted for 40%–45%. As regards services, the weight of import is much lower, so, the overall weight of the import in the ultimate consumption can be estimated at 30%-35%. Thus, one-third of growth in the real volume of consumption is ensured by import goods and services, while the remaining portion motivates growth in domestic production. As a result, each ruble of growth in households’ expenditures on the ultimate consumption increases domestic production by 25 kopeks to 30 kopeks.    

As regards government expenditures, the situation is much worse: the increase in the physical volume of the consumption amounted to 5% to 13% (without taking into account the 2009-2010 period when the real drop in consumption was registered). Even if it is assumed that government expenditures do not result in growth in import (but it is obviously untrue), it appears that in modern Russia efficiency of government expenditures on ultimate consumption for the purpose of economic growth motivation, firstly, does not exceed 10% to 13% and, secondly, is much lower than that of households.

М. Yu. Khromov, Leading Expert of the Structural Research Center