The government often provides funding for endeavours such as scientific research, enviromental innovation, jobs programs and social services. Government funding can be beneficial--sometimes vital--to help programs succeed, improve the economy or provide incentives for the private sector to engage in programs that benefit the society at large. On the other hand, government funding can also have significant drawbacks, such as a lack of independence and stricter guidelines on use of funds. The debate over how the government should spend its money is one of the oldest debates in the history of public policy.
Government funding can help provide services and opportunities to more people. For example, the government funds many grants and work-study programs for college education. Without these grants, many students would not be able to attend college. If fewer people attend college, the workforce will be less educated, and the economy as a whole could suffer.
Further, when governments fund large operations--such as Medicare--programs are able to take advantage of economies of scale. This is one reason nations with government-funded health programs spend less than the United States spends on health care. The United States spends more than 16 per cent of its gross domestic product on health care; the average county in the Organisation for Economic Co-operation and Development, all of which have some kind of government-funded national health care program, spends only about 9 per cent.
There are also arguments against government funding. One argument is that people and organisations who receive government funding will become dependent on a "nanny state" and fail to learn to succeed without taxpayer assistance. Further, some argue that the government spends too much on programs that do not provide a good return on the investment. Some argue that subsidising the arts, for example, is wasteful and is a disservice to taxpayers.
Many of these arguments date back to a classic ideological battle. Some economists believe in Keynesian economic spending policies--a strong welfare state, deficit spending during a recession and state intervention in the economy--as a means of preserving capitalist systems. Other economists, such as Milton Friedman, argue against government intervention in the economy.
Types of funding
There are two different types of government funding. With direct government funding, the government gives money directly to an organisation. Indirect funding includes tax breaks, vouchers and certificates. The differences are important when considering the positive and negative aspects of government funding. For example, church groups and other faith-based organisations cannot use direct government funding for explicitly religious materials, as the Supreme Court ruled in the case of Zelman v. Simmons-Harris that such use of public funds is unconstitutional. However, the Center for Public Justice notes that groups that accept indirect funding "do not need to separate out inherently religious activities." This is just one example of how direct government funding and indirect funding can have different impacts.
The U.S. government passed the American Recovery and Reinvestment Act, which called for £511 billion to be spent using federal government dollars to boost the economy. Much of this money went toward infrastructure projects, such as building roads and schools. This was direct funding.
- OECD: Society at a Glance 2009--OECD Social Indicators
- The Cato Institute: Subsidies to the Arts: Cultivating Mediocrity
- Center for Public Justice: The Faith Based Initiative: "Indirect Government Funding: Why and How"
- Recovery.org: Who Is Recovery.org
- The American Prospect: Keynes vs. Friedman; Ezra Klein; December 2008