Tuesday, January 15, 2013

Government Productivity

         In previous posts, I stressed that the ultimate engine of economic growth is increased productivity.  It follows that aggregate economic growth depends on the rate of productivity increase in each sector of the economy weighted by the fraction of GDP accounted for by that sector.  In that regard, the chart below illustrates that over the last 50 years the share of government spending (Federal, State and Local) as a fraction of GDP has risen consistently.  This makes the rate of productivity growth in the government sector increasingly important.


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