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August 15, 2006
Measuring spending growth
After a public budgets is passed, whether it’s a state budget or a local city budget, many people want to know how much more money is being spent. But, explains NC State University economist Mike Walden, just because a government spends more money next year than this year it doesn't mean that the budget has gotten bigger.
"A couple of factors have to be taken into account. One is inflation. So we would expect that public budget just like private budgets would have to be bigger this year rather than last year just to account for higher costs," Dr. Walden explains.
"Another is population growth. If your population is bigger for your state or for your city, you would expect that the government is going to have to pay and spend more.
"So, for example, if you had a year when the inflation rate is 3 percent and your population base grew 2 percent, then you would expect that spending … would have to go up just to stay even by the sum of those two -- by 5 percent.
"So you would only call a budget increase greater than 5 percent a larger budget."
Posted by deeshore at August 15, 2006 08:00 AM