Government spending is the sum of purchases of goods by the government and the compensation of government employees (as if the government is buying the services of its employees, who are in turn providing them to the public for free) and it is determined by a countries fiscal policy.

Government purchases consist of purchases made by the central government (or the federal government in the U.S.) and the purchases made by the local government. Purchases made by the central government can be divided into two components: spending on the national defense and non-defense spending. In 2006. they accounted for 19% of US GDP.
However, government purchases do not include transfers from the government (such as Social Security and Medicare – transfers are a component of consumption, via disposable income), nor interest payments on government debt. If they did, the share of government spending in a countries GDP would be much higher (31% of US GDP in 2006.).

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